The Chrysler waiver for executive bonuses?
posted at 7:03 pm on March 22, 2009 by Ed Morrissey
When the House passed its bill to tax executive retention bonuses at firms receiving TARP bailout funds, they added an odd codicil to the legislation that puzzled some observers. The legislation only applied the taxes to firms that received a minimum of $5 billion in cash infusions from Treasury, causing some people to wonder why that particular number got chosen. As it turns out, a neglected part of the Chrysler bailout loan agreement may be the answer.
On page 265, near the end of the lengthy document, the agreement stipulates:
7.17. Executive Privileges and Compensation.
The references to the Borrower in Section 7.17 of the Loan Agreement shall be deemed to be references to Chrysler LLC.
(a) Notwithstanding anything herein to the contrary, Section 7.17(a) of the Loan Agreement shall be modified to add the following at the end of subsection (v): “; provided, however, that a Relevant Company or any of its Subsidiaries may pay retention payments due in August 2009 earned on a pro rata basis through the date of this Agreement.”
How much did Chrsyler get in cash? $4 billion. Under these terms of the bill and the loan agreement, Chrysler can pay out its bonuses without incuring any extra tax penalty. It’s a very convenient coincidence, isn’t it?
Chrysler has already begun to put distance between itself and the residual AIG outrage:
Chrysler’s top 25 executives signed a waiver forgoing any severance or bonus as a condition of its $4-billion loan from the U.S. Treasury, CEO Bob Nardelli said Tuesday. But the company still will pay substantial retention bonuses later this year under a plan crafted by DaimlerChrysler in 2007.
In an interview with CNBC, Nardelli said, “I think the entire organization is acting in a very responsible way to make sure we are protecting the integrity and the governance of the taxpayers’ funds.”
Nardelli was eager to distance Chrysler from AIG, which recently paid more than $160 million in bonuses.
USA Today reported on this last November, when Chrysler was begging for the funds:
As Detroit’s crumbling auto industry asks Congress for a bailout, Chrysler is in the awkward position of paying about $30 million in retention bonuses to keep top executives while the company cuts thousands of jobs.
Chrysler owes the bonuses under its contracts with about 50 executives, based on a retention incentive plan crafted early last year by former German parent DaimlerChrysler, when it was preparing to sell the Chrysler unit.
Nancy Rae, Chrysler executive vice president for human resources and communications, said the move made sense at the time to ensure potential buyers that key Chrysler executives would remain in place after a sale. She acknowledged that the bonuses could be seen as controversial now.
“We all would be smarter if we knew what we know now back in February of ’07,” she said. “Probably a lot of different decisions would be made.”
Chrysler wants more bailout funds, so this may well be a moot point. But right now, looking at the terms of the Bill of Attainder passed by the House and the terms of the bailout with Chrysler, we can answer the cui bono question that eluded us last week on the $5 billion floor. (via HA reader Morgen)
Update: Jim Treacher e-mails: “Obama Knew, Bonuses Flew.” Let the bumper stickers appear!
Blowback
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When you buy from Detroit, you
–support leftist executives in bed with Democrat congressmen
–support leftist unions who do so very much to oppose everything good in the political realm
–prop up the Democrat socialist “paradise” of Michigan
jgapinoy on March 22, 2009 at 10:32 PM
I live in Detroit and am involved in automotive marketing. Why would any auto company in its right mind offer retention bonuses? Where are the “best and brightest” going to go? They won’t be going to Ford or GM because they are not hiring. They won’t be lured away by the imports because they are not looking to take on extra dollars.
February new vehicle sales (annualized) represent less than 9 million units. A good year in the industry is 16 million units. The only brand with increasing sales is Subaru, which markets heavily to gays (who don’t have families to support).
By the way, Nancy Rae is one of those indispensible executives in line to get a sizeable retention bonus. How can a company lose its head or human resounrces when it doesn’t have the means to recruit new employees?
bw222 on March 22, 2009 at 11:00 PM
I want failure to fail. This is madness. Get the government OUT of the business of business.
Mojave Mark on March 22, 2009 at 11:21 PM
I’m sure it’s all just a big coincidence, nothing more, and besides IT’S A DISTRACTION FROM ALL THE WONDERFUL THINGS THE OBAMASSIAH WANTS TO ACCOMPLISH.
Like world peace and harmony and free unicorns and unlimited health care at no cost and free educations and no more oil and clean air and lower sea levels and all that other good kinda stuff.
GarandFan on March 22, 2009 at 11:21 PM
As I know of more than a few family and friends up there in Michigan(Lower and Upper), I have no problem supporting the state by choosing Detroit.
It means that I get to buy what is an actual car, not a glorified golfcart. It means that I’m supporting workers that aren’t merely temp-contract slaves, but full-fledged, unionized men and women building great cars and trucks. It means that what I buy pleases me, not Al Gore. It means that the folks who designed the car and platform were people who know US and Canada from a first-hand, citizen experience. It also means that their unionization allows them to concentrate on the car and not if they’ll have their job in 4 months.
That is why I buy and rent Detroit-designed, UAW/CAW built cars. No other group in the world does (or wants to do) affordable performance; nor do they treat their same-nation workers with the same high respect.
Soon I’ll have a chance to buy Detroit, again.
sethstorm on March 23, 2009 at 12:00 AM
Give those who wanted government to step in a reason.
Otherwise they’ll want more revenge for the private sector offshoring their work.
sethstorm on March 23, 2009 at 12:03 AM
Do you really think that only Detroit makes big vehicles?
Do you really think that non-union means slavery?
I think the fact that you have “more than a few family and friends up there in Michigan” is clouding your judgment.
jgapinoy on March 23, 2009 at 12:07 AM
Wha-a-a-at?
Everyone except you knows that Honda & Toyota generally build much better value vehicles than any of the
BigShrinking Three.jgapinoy on March 23, 2009 at 12:11 AM
Fixed.
jgapinoy on March 23, 2009 at 12:14 AM
I didn’t have to paint any blood, they just came.
That’s about the average mileage for a UAW/CAW-built truck or truck-inspired van (such as an Astro) to have at the end of its life.
Your point?
sethstorm on March 23, 2009 at 12:16 AM
Good for you. You’re not even smart in the real estate department either. Why not shoot for the moon and buy New York City?
Knucklehead on March 23, 2009 at 12:19 AM
In your dreams. You have a link from a credible source for that BS statement you just made?
Knucklehead on March 23, 2009 at 12:21 AM
The way they run folks with temp-contract out here in Ohio, yes.
The way that Toyota uses Chinese immigrants in Japan, yes.
Detroit puts the large vehicles in the reach of the masses- see their W platform (which the Pontiac Grand Prix is a part of) for an example.
sethstorm on March 23, 2009 at 12:22 AM
It seems to me we’re looking at this thing back-assward. Wall St. and Main St., are us. You and me. Our 401K’s, have us connected to the one, and our jobs connected to the other. We aren’t the problem. The gov. is. When they want to raise taxes, do they come to us and ask if we can afford it? No, they don’t. Then they tell us they can’t give it back because “THEY” the gov. can’t afford it. After all, there’s all those smucks on welfare that need it. Yes, I know, some need help and I’ll give it, but what we need is to get out into the street. Raise some cane, and for God’s sake, don’t vote the same people back in. They shouldn’t need health care, and retirement packages, they need to go home. Get a job in the real world. Drive their own cars, ride in coach, have their kids in public school, fill their own gas tanks!!! Until we decide we’ve had enough and are ready to do something constructive about it, this will continue, and all this talk will be nothing more than hot air.
Amazing Grace on March 23, 2009 at 12:23 AM
They may manage 401k’s but that doesn’t put Wall Street any closer to Main Street.
sethstorm on March 23, 2009 at 12:36 AM
Still waiting for that link on those statistics.
Knucklehead on March 23, 2009 at 12:45 AM
Get the unions out of Ford, GM and Chrysler and their auto’s would be competitive.
Johan Klaus on March 23, 2009 at 1:15 AM
That’s why me and mine stopped buying from Detroit, back when we were still living in the area – we “had” that “chance” far too often for our liking!
Blacksmith on March 23, 2009 at 2:35 AM
Consumer Reports now recommends 100 per cent of Subaru’s vehicles, 95 per cent of Honda’s, 89 per cent of Toyota’s and 70 per cent of Ford’s. At the other end of the spectrum, CR recommends just 17 per cent of GM’s and none of Chrysler’s.
So Detroit’s woes continue and the Japanese auto makers continue to dominate Consumer Reports’ influential annual survey of the most reliable vehicles.
Toyota, in fact, grabbed five of the 2009 Top 10 picks. The influential survey is part of CR’s annual auto issue, which hit newsstands this week.
The closely watched CR results are based on more than 50 tests of 80 different vehicles.
The winners ranked high in road tests, reliability and safety requirements.
Over all, Detroit’s auto makers fared worse than in the 2008 survey. Chrysler placed 15th, GM 14th and Ford 12th out of 15 auto makers.
- GlobeAuto
Case closed.
MB4 on March 23, 2009 at 2:45 AM
Despite endless and repeated promises, GM and Chrysler, in particular, continue failing at delivering high-quality, reliable vehicles across the board. The Jeep Wrangler Unlimited Sahara, for instance, scored just 17 out of 100, while the Lexus LS 460L scored a 99 out of a 100 to earn the title of best all-around vehicle.
MB4 on March 23, 2009 at 2:50 AM
BRAND RATINGS
Consumer Reports gives each auto maker a report card based on the reliability of its models and scores from vehicle tests. The grades are on a 100-point scale:
Honda: 78
Subaru: 75
Toyota: 74
Mazda: 73
Mercedes-Benz: 72
Nissan: 72
Volkswagen: 72
BMW: 72
Hyundai: 70
Volvo: 65
Mitsubishi: 64
Ford: 63
Suzuki: 60
General Motors: 57
Chrysler: 48
MB4 on March 23, 2009 at 2:53 AM
MB4,
That list is probably pretty correct, but as a rule consumer reports is absolute bullsh1t.
Those who buy products based on CR, buy crappy products.
TheSitRep on March 23, 2009 at 7:31 AM
Mom never gets tired of co-signing?
ex-Democrat on March 23, 2009 at 8:00 AM
Whatever. I’m sick of all this idiotic populist fury over bonuses. $30 million divied up among 50 people is not a huge sum in any case.
This is a very dangerous road we’re walking down, and we’re playing right into the Dems hands by taking the focus off of their own corruption and their responsibility for the financial crisis – not to mention taking the focus off of the trillions of dollars in “stimulus” and the porked-up budget, which threaten to bankrupt this nation.
We have 2 choices:
1. Let companies go into bankruptcy, and let judges renegotiate compensation as part of the restructuring process.
2. Give the companies loans, but do not meddle with their contracts, including compensation agreements.
Because executives can and do work in more than one particular industry. Look at Bob Nardelli’s resume’, for example. He worked at G.E., Home Depot, and Coca Cola before ending up at Chrysler.
Buy Danish on March 23, 2009 at 8:06 AM
Oh, I was soooo going to stay out of this argument until this bonehead statement.
Our Astro died (transmission and engine problems) one month after our last payment. It had 130,000 miles. We wanted to use it for towing, since it supposedly had the towing package. When we took it into the dealer, he said they had installed the towing supports incorrectly. It had to go to the dealer to get “re-done”.
Our Chevy Lumina (my wife called it the Lemina) didn’t even make it that long. It completely died (transmission) with a year left to go on the loan. We bit the bullet and decided not to fix it since we had already replaced 3 alternators, 4 window latches, a water pump and the passenger seat (broken support).
We have a Buick Terraza now… brand new from the dealer. For the first three months, it was in the shop more than we had it. The entire engine electrical system and 3 of the 5 computer modules had to be replaced (they kept shorting each other out). The automatic door motors have failed twice already (we’ve only owned it for less than two years). We finally turned off the door motors and said screw it.
This will be the last GM vehicle we’ll own. My father-in-law used to work for them, but lets be really honest… these vehicles are crap. My uncle works for Honda… in the same state… and they build much better vehicles, for comparable pay, without all the union crap.
dominigan on March 23, 2009 at 9:04 AM
Sounds like you got the cars at the end of the line, three times in a row or didn’t do maintenance.
Regular maintenance and an ear for problems helps. But then those are rare outside Detroit and the Manufacturing Belt.
sethstorm on March 23, 2009 at 7:15 PM
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