Chrysler Drops Dealers, Skirts Caps on Executive Pay

chryslerABC News Photo Illustration

Just days after revealing a plan to that would allow the new Chrysler-Fiat partnership to skirt U.S. restrictions on executive pay by having some top Chrysler executives deemed Fiat employees, the automaker filed additional bankruptcy papers today that called for the closure of 789 dealerships -- a quarter of the dealers that sell the company's cars.

Anticipating the closures, more than 100 dealers descended on Capitol Hill Wednesday to convince lawmakers that Chrysler should not close its businesses as a cost-cutting measure. Word that the very company seeking to keep them from operating their dealerships had found a loophole to pay executives more than $500,000 annually outraged the car sellers.

"Of course I'm angry," Wade Walker, a Jeep dealer from Montpelier, Vt., said Wednesday.

"It proves these executives are only looking out for themselves and no one else," Walker said from Capitol Hill after meeting with both of Vermont's senators.

Thursday, Walker's dealership, which has been in his family for 50 years, was listed as one of the nearly 800 the company is expected to close down.

The company, which received $4.1 billion in government bailout funds, filed for Chapter 11 protection April 30 and began the court-monitored process of merging with Italian automaker Fiat.

Walker said he believed his dealership was being targeted because, in addition to Chrysler-made Jeeps, he also sold Ford and Volkswagen vehicles. He said the closure would almost certainly lead him to lay off some of his 35 employees, 17 of which sell Jeeps exclusively.

"I can't answer how many will be fired if I get closed down," he said.

Walker said he believed he was meeting his sales goals but said sales were off by as much as 40 percent.

Executive Pay

In February, Treasury Secretary Tim Geithner capped salaries at $500,000 for executives at companies receiving "extraordinary assistance." Under a deal struck with Treasury in which Chrysler received $4.1 billion in taxpayer dollars, the bankrupt automaker agreed to limit salaries for 25 senior executives.

But in documents related to the bankruptcy and merger filed Tuesday, Fiat seems to have found a loophole that could allow it to bypass that cap.

In documents filed in bankruptcy court, the company said senior Chrysler "officers" -- the company's top executives -- can be considered Fiat employees "seconded" to Chrysler, and therefore be paid by Fiat beyond the $500,000 cap set by the government.

"Any such seconded officer may receive supplemental employment compensation from Fiat ... notwithstanding any 'cap' on compensation payable to such officer ... under any Law, rule or policy applicable to the Company," read the document.

The Treasury Department did not respond to requests for comment about whether Fiat's plan is permissible.

Neither the spokesman for Chrysler nor the spokesman for Fiat would comment on executive pay or say which, if an,y of the current executives would be "seconded," or how much they would potentially be paid.

But Friday morning, Chrysler's CEO Bob Nardelli said in an e-mail to employees: "Several news reports have stated that Chrysler executives 'found a loophole' for executive compensation. I want to assure you that these reports are absolutely, positively incorrect. "

Chrysler and Fiat

As outlined in the court papers, the plan could apply equally to American or Italian executives. Hypothetically, if Fiat wanted to move an executive currently earning more than $500,000 (and paid exclusively from Fiat's coffers, not with bailout funds) from Fiat to Chrysler, the clause would allow that person to continue to earn his salary without reprisal from the U.S. government.

Fiat already has said it would replace Chrysler's current CEO, Nardelli. Chrysler is a private company, and is therefore not required to publicize any executive's salaries, including that of the CEO.

In February, Nardelli told lawmakers he would be willing to take $1 in compensation if the company received a bailout. Technically, however, Nardelli has been earning $1 annual salary since 1997, leading executive-pay experts to speculate that he is being paid a significantly larger undisclosed salary by Chrysler's majority owner, the private equity firm Cerberus Capital Management.

Fiat is believed to have very few executives currently earning more than $500,000. Fiat CEO Sergio Marchionne's total compensation for 2008 reportedly was around $4 million.

Large salaries for executives at companies that have laid off workers and received government bailouts have become a flashpoint for populist and political rage.

Some 1,000 of Chrysler's 3,189 U.S. dealers likely will lose their franchise agreements, according to AP. Chrysler is targeting dealerships that are underperforming or sell just one of the car's three major lines.

Politicians sympathetic to the Chrysler dealers at risk of closure criticized the automaker for both its plan to oust dealers and skirt the government cap.

Sen. Ben Nelson, D-Neb., told reporters Wednesday he worried that his home state of Nebraska could lose about 2,000 jobs if General Motors and Chrysler move ahead with all their planned dealership closings.

When reached for comment on the pay loophole, Nelson referred ABC News to previous statements he has made on executive compensation.

"No one is angrier about excessive bonuses than I am," Nelson said last month. "No one should ever benefit from squandering taxpayer dollars that keep their company afloat."

Beyond the dealers, laid-off Chrysler workers were equally angry to learn about the partnership's plan to skirt the cap.

Between January 2007 and February 2009, Chrysler has cut some 32,000 positions, or 37 percent of its work force. The company currently is trying to cut its work force by some 3,500 jobs through buyouts.

Jeff Lillie, an autoworker who assembled Jeeps in Toledo, Ohio, for nearly 30 years and was laid off earlier this year, said if there was money to pay executives large salaries, workers should be entitled to some of it too.

"I don't think it's fair," he said. "I don't know how they can justify that."