FORTUNE MAGAZINE MotorWorld by Alex Taylor III

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.

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.