Tuesday, December 02, 2008

False economy

One of the sillier things about the proposed auto manufacturer bailout is the noise that was made at the last hearing about the fact that the company CEOs took the company jets from Detroit to Washington, DC. In fact, I'm pretty sure I heard more about that fact than about what actually happened at the hearing. (Amusing fact. When Ford's CEO was asked if he would take a pay cut of his $2 million salary to a symbolic $1, his response was "I'm think I'm OK where I am." Uh, duh.)

Because of the bad PR last time, it's been announced that the Ford CEO will actually be driving to Washington, DC later this week. That has got to be the dumbest economic move ever. According to Google Maps, that's about a 9 hour drive. Let's say he's got an iron bladder like Dr. Fig (don't ask), and will make only the minimum of stops. So let's say it's a 10 hour drive, door-to-door.

Ford's CEO make a $2 million salary, but his total compensation package is $22 million. That means he gets paid $11,000 per hour. Nice work if you can get it, but that means just the time it will take to make this drive will cost Ford $110,000.

But there are even more costs to consider. Mulally is making this trip to ask Congress for the money that might mean the difference between staying in business and going under. (And Ford is probably in the best shape of the Big Three.) So if for some reason, he misses all or part of the hearings, the very future of Ford would be jeopardized. Makes the stakes of having a flat tire seem a lot higher, no? For want of a spare tire...

To get to DC, Mulally will have to drive through Michigan, Indiana, Pennsylvania, and Maryland. In December. What are the odds that there might be several inches of snow just like we got in Illinois on Sunday somewhere in that 500 miles? Maybe one percent? And if that snow had a 50/50 chance of stopping the CEO to get to the hearing to beg for his company's future? That's a 1 in 200 chance that we'd lose a company worth $18 billion, even taking into account the recent troubles in the stock market. Alleviating that risk might be worth the price of a private jet.

Flying commercial isn't much better, either. It will take several more hours that flying in a private jet. (I'm guessing, never having flown in a Lear.) Remember that $11,000 an hour? Again, you have all the risk of being delayed because of weather, an oversold plane, mechanical problems, etc.

I'm not saying that the CEO getting to take the company jet on a weekend shopping trip to Rodeo Drive isn't extravagant and unnecessary. I'm just saying that sometimes spending money to save the time of an extremely valuable employee or in an incredibly high-risk situation is sometimes a sensible expense.

1 comment:

David said...

None of these CEOs is worth $22 million. If he really cares about whether or not his company survives, he should put up, or shut up.

"I'm okay with where I am," indeed.