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Narcissism, nepotism and greed at American Axle

If you need another reason why Detroit is in trouble, take a look at Dick Dauch's American Axle.

By Alex Taylor III, senior editor
Last Updated: July 2, 2008: 3:42 PM EDT
American Axle CEO Dick Dauch

NEW YORK (Fortune) -- More than two decades ago, Fortune wrote admiringly about Chrysler's Dick Dauch, the muscle-bound manufacturing boss who was pounding his factories into industry-leading shape. His bruising leadership style seemed perfectly suited to a company filled with similarly high-profile executives bearing names like Iacocca and Lutz.

Since then Dauch (pronounced dowck) has gone on to lead the revival of what is now one of Detroit's leading parts suppliers. In 1994, he took over some broken-down General Motors plants that made axles and drivelines for SUVs and pickup trucks, and armed with some lucrative GM contracts, turned American Axle and Manufacturing (AXL) into a robust going concern with revenue of $3 billion.

Unfortunately, success brought out Dauch's less appealing side, and he began treating the company like a personal fiefdom and reaping industry-leading pay packages. Matters may have reached a tipping point late last week when the company announced that Dauch's board of directors had awarded him an $8.5 million bonus for 2007 even though American Axle's stock has slid from $31 to $8 over the past 12 months.

Dauch got the award in part for his "leadership role" in taking American Axle through a nasty three-month strike with the United Auto Workers to make the company cost-competitive. In the process, wages for many workers were slashed by $10 an hour. The Axle board apparently ignored the fact that the strike cost General Motors (GM, Fortune 500), American Axle's biggest customer, $1.8 billion pre-tax, in part because Dauch couldn't get it settled quickly enough. Or that GM kicked in $215 million to sweeten the kitty in order to get the contract settled.

The bonus pushed Dauch's 2007 compensation to $18, 675,194. That's chickenfeed for a hedge fund manager or investment banker, but huge money in a town whose number one industry is struggling to survive. GM's Rick Wagoner, who managed to pull off his own historic agreement with the UAW last year without incurring a three-month strike, received total compensation of $15.7 million last year and got no bonus.

An American Axle spokesperson declined to comment for this column.

But then Dauch has been treating American Axle as his personal playground for years. An industry trade magazine referred to publicly-owned American Axle as a "family company." No wonder:

-- Dauch recently named one of his sons, David, president and chief operating officer of the company.

-- Another son, Richard, worked for the company for 13 years and served as executive vice president of worldwide manufacturing before departing earlier this year.

-- The address of the company's world headquarters is One Dauch Drive.

American Axle's "executive compensation objectives" seem skewed toward providing outsize payouts to Dauch and other executives whether the company is doing well or not. In addition to the usual boilerplate about "rewarding company and individual performance," the proxy statement goes on to say that executive pay should be high even when the company is doing poorly. "In periods of temporary downturns" it reads, "our compensation programs should continue to ensure that...executives remain motivated and committed." Or else, what? They'd become shiftless and unfocused?

Dauch gets an even sweeter deal. His contract calls for him to be compensated as co-founder of the company, in addition to being chairman and CEO. As such, he gets paid "in consideration of...his experience in the automotive industry and his extraordinary value of leadership...since he co-founded the company in 1994." Nice work, if you can get it. It turns compensation into an annuity and makes current performance almost irrelevant.

There's no question that Dauch has built a successful company, and he has done good deeds for the city of Detroit by locating his headquarters within city limits. But he has left American Axle grievously unprepared for the market shift away from sport utility vehicles. Now that GM has shut down production in four SUV assembly plants, there is going to be a lot less demand for the axles and drivelines that American Axle makes.

Given the auto industry's currently dire condition, Dauch's current pay package has to be considered unseemly. Asking workers for sacrifice when your own pot is overflowing is unnecessary and mean-spirited

Perhaps it is time for Dauch to give some of it back. There is no shortage of worthy charities in Michigan these days. To top of page

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