The heads of the "Big 3" automakers were in Washington DC asking for a bailout for their respective companies. One of the sound bytes that made it into the news was that the CEO's flew on private jets from Detroit to Washington DC. Let's do some analysis on this red herring.
The 2007 total compensation (salary plus bonus plus stock options) for the company heads were the following:
- Ford CEO Alan Mulally: $22.7 million
- GM CEO Rick Wagoner: $15.7 million
- Chrysler CEO Robert Nardelli (ex-Home Depot CEO) : Privately owned by equity firm Cerberus Capital. Information is confidential.
Assume that the round trip private jet flight costs $20,000. In terms of per hour saved relative to per hour executive pay, flying a private jet its not that horrible. Consider the daily cost of what these companies are bleeding. The private jet cost is peanuts in the larger picture.
I do not care how the "Big 3" CEO's got to Washington DC; I am concerned with why they are there in the first place. The answers are astonishingly simple yet all politicians seem to lack the blunt honesty needed during these times.
1) The product is inferior to foreign manufacturers for all models barring the pick up truck.
2) The United Auto Workers union has priced their labor costs out of the global market. Actually, minimum wage is not a competitive price in the global market.
3) Executive bonuses are not tied to performance.
4) The lack of government mandate for higher fuel efficiency standards have left SUVs and other models obsolete.
Here is an idea, instead of the government bailing out the auto industry, how about asking oil companies for a loan?
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4 comments:
In WW2, the government stepped in and required the big 3 auto companies to build vehicles for the war effort. They could do something similar now, except instead of building jeeps, tanks, and fighter planes, have them build 300 mph trains to crisscross the country. More jobs, better environment, and less dependance on foreign oil with one fell swoop.
Public transportation such as trains and buses are a good start. I like that idea. It seems that no one has the political muscle to get it done. Also consider that the govt makes money off of the gas tax. Less gas means few tax dollars.
American cars are inferior and over-priced. Will the automakers be able to make a good quality train at reasonable prices, or will we have to buy these from Japan or Germany where the technology is already there?
It's true that historically, there has not been the political will to get a real mass transit system in this country. A major reason for this, obviously, is that both big business (big auto, big steel, and big oil) and big labor (UAW and USW) benefitted from the system in which everyone was forced to buy a car.
But with the exception of big oil, these forces have been waning in recent years. They may even be weak enough that the government can drag them kicking and screaming into a new era of industry, one in which they would ultimately thrive.
Imagine factories that are so flexible that they could switch what they produce overnight. Such factories could respond to changing market conditions in real time, which would all but ensure perpetual profitability. In times like the present, when demand for cars is low, the auto industry could be given government contracts for mass transit projects.
Indeed, the government bailout that is up in the air right now could be structured as such: we'll fund the cost of redesigning your manufacturing process AND keep you in business through contract work, you pay us back when these changes we've forced you to make return you to profitability.
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