Numbskulls in Detroit: Part Deux

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I suppose it should come as no surprise to anyone that as part of the auto industry bailout bill this week, Congress will require the Big Three to sell off their corporate jet fleet. This is, of course, payback for the stunning arrogance the CEOs of GM, Chrysler and Ford showed two weeks ago when they flew to Washington in leather-seated, pampered luxury, hats in hand, to ask Congress for bailout money. One wonders if it would have gone any differently if the executives had been PR savvy enough to have driven their own cars or flown the airlines in the first place.

Woulda, coulda, shoulda; the damage is done and it's likely to tarnish the very idea of business airplanes for business flying. Thanks to these guys, "fat cat" and "bailout" will be forever linked to the words "business aircraft." At this juncture, it's impossible to know what the next effect of that will be. I see two long-term impacts, one good, one less so.

The good effect is that if boards are smart about this, they'll carefully examine how their companies use business aircraft and get way ahead of the next stockholder meeting, where this seems almost certain to come up as an issue. It's really part of the larger question of executive perks and over compensation, which stockholders will also be asking about, I'm sure. Extracting that particular pound of flesh, Congress made Draconian restructuring of executive pay yet another condition of the bailout plan.

On the plus side, stockholders will—and should—look at the kind of abuses by CEOs that this sordid chapter revealed. For instance, it was widely reported that part of Ford CEO's Alan Mulally's benefit package included having the company jets fly him to Seattle on the weekends, where he maintains a home. What the board should have said is, sorry Al, the job is in Detroit. Buy your own weekend tickets.

On the downside, I'm sure that as the pendulum arcs through the inevitable over reaction, many companies will dump corporate airplanes that are genuinely useful. This will hurt both the companies and the biz aviation industry in general, across the board from airframe manufacturers, to avionics companies to FBOs. I think it's part of a sea change, but I don't think it was inevitable. Had these three CEOs been responsible and perceptive, this might not have gone down as it did.

The other downside worth mentioning is that Congress is proposing a federal "car czar" to oversee the industry. While I think it's hardly unreasonable to have someone in charge of how $18 billion in taxpayer money is doled out, the czar will probably be some political hack appointee who will make a hash of it. And personally, I'm not fond of the concept of government oversight of private enterprise, but that's part of the aforementioned sea change and, frankly, bad business decisions got us here so it's not as if these companies have been Wharton School success stories. (The more I think about this, the more I sound like I'm arguing that these companies should be allowed to fail. And actually writing it makes it sound even better.)

Meanwhile, I hear Rick Wagoner is offering a sweet deal on a really nicely appointed Gulfstream.

Comments (30)

... and while Congress is at it, let ditch the 89th over there at Andrews ...

Posted by: Phil Derosier | December 10, 2008 1:41 AM    Report this comment

Let's see now.......and how does Nancy get back and forth to the left coast almost every weekend at what cost to the tax payers?

Posted by: Stuart Baxter | December 10, 2008 3:59 AM    Report this comment

The 3 auto execs really blew their chance to lay the blame of the financial crisis at the feet of the incompetent congress people that were acting like it was gm/ford/chrysler responsible for the mess congress created. I wish he would of said "Barney Franks, you **********, it's you fault, not ours."

Posted by: Bob Floodeen | December 10, 2008 5:14 AM    Report this comment

Hey Bob, Barney Frank is my congressman and he is a pretty good rep. He is not to blame for the mistakes on Wall Street. The blame for the financial crisis is the financial industry. The blame for the car industry crisis is the car industry. Toyota and other foreign manufacturers are busy making cars in the US and they are not crying for a bailout. Let GM sell its jets and cut its costs. Let GM's top management live like the rest of us in a world where if we do a bad job, we suffer with the rest of our employees.

Posted by: Mark Spitzer | December 10, 2008 9:58 AM    Report this comment

Let them fly commercial like most prudent businessmen. If their time is so valuable perhaps they should be in their offices during work days instead of playing golf.

Posted by: Ron Rissane | December 10, 2008 11:02 AM    Report this comment

Bertorelli has it right: The incredibly PR-stupid decision these guys made to travel by private jet to ask for public money has given us all a black eye. In principle, I believe that whether or not these corporations should operate a biz-jet should be a decision for their shareholders and boards, not government. But any idiot could see the likely outcome of such a royal entrance to ask for money from cash-strapped, debt-burdened, and increasingly out-of-work taxpayers. Even as strong supporter and regular user of business aviation it pissed me off. Apparently the executives involved are as good at PR as they are at guiding their compaines to profitability. To these Detroit jug heads: On behalf of general aviation, thanks for nothing.

Posted by: s ratkovich | December 10, 2008 11:46 AM    Report this comment

While a large majority of business-owned aircraft use, especially at the piston and turbo-prop level, yield justifiable value-to-expense ratios to the business that operate them, there is also a fair amount of questionable use of these aircraft, which usually grows in proportion to the size and range of the aircraft in question. Due to its isolated and somewhat opaque nature, business aviation has often been able to operate “under the radar” of public scrutiny. Unfortunately, the Antoinette-like behavior of the auto executives in showing up in three separate Gulfstream’s to cry poverty served to bring executive avarice to the public-eye, and subject the whole business aviation industry to a blanket equating of business aircraft operation to fiduciary irresponsibility.

When the economy is “strong”, and annual profits are in the billions, it’s easier for corporate governance to “overlook” non-business related annual aviation expenses in the millions. But when the music stops, and everyone starts looking for chairs, the first thing that has to go is unessential costs, and that often means non-essential trips in the Challenger. The fact that so many aircraft are being put up for sale means their business value is simply not justifiable, which brings into question if it ever was.

Posted by: Avi Weiss | December 10, 2008 12:15 PM    Report this comment

No, Congress did not make this economic debacle.

If the executives are worth so much that they need to use private aviation at 30 times the cost of the airlines, why are they in this mess?

Avi said it quite succinctly. I couldn't have said it better myself.

Posted by: steve egolf | December 10, 2008 12:41 PM    Report this comment

Are the auto execs the ONLY numbskulls??? Why, I recall in my early days of flying that the Teamsters had a very nice G-2, complete with 2 voluptuous flight attendants, private cars, and catering, sitting in the hangar at Butler/BWI.

UAW and other unions would never squander money, right? Union bosses eschew the trappings of luxury ... right?

If any of you believe that, well I've got a bridge to sell you.

Posted by: Phil Derosier | December 10, 2008 12:48 PM    Report this comment

It burned me up that they actually drove to Washington from Detroit. Here is the math:

Car vs. Private Jet

Assuming an hourly wage $12,019 (annual salary of $25 million)

Travel Time 8 hours (Car) 2 hours (Private Jet) Direct Trip Costs* $38 (Car) $20,000 (Private Jet) Total Trip Costs $96,192 (Car) $44,038 (Private Jet) *Direct trip costs/Car include gas @ ~$1.89/gallon (I didn’t even factor in how much more dangerous it is to drive compared to flying the same distance) *Direct trip costs/Private Jet include aircraft rental, pilots, etc. @ ~$10,000/hr

Any CEO worth his/her weight in Jet A would know these numbers (and could explain it to congress in a heartbeat…)

Posted by: Michael Smith | December 10, 2008 2:31 PM    Report this comment

If the CEOs were responsible and perceptive, they would not have been in Washington begging for money in the first place! And I agree with Phil, in that the 747 fleet at Andrews needs to be parked for awhile. The public has no idea of the costs involved every time the Pres. or anyone else in washington moves.

Posted by: Al Dyer | December 10, 2008 2:49 PM    Report this comment

I still don't see a GOOD economic justification for having expensive jets at their disposal. They could at least have taken an Eclipse or a Citation to reduce the hourly costs.

Posted by: steve egolf | December 10, 2008 2:51 PM    Report this comment

done

Posted by: steve egolf | December 10, 2008 2:57 PM    Report this comment

I would do the math a little differently on the cost of the car versus the private jet. The CEO's time is a cost that the car company will incur whether the CEO drives or flies. Thus the differential cost to the company is much more to fly a private jet. Besides, the CEO can ride in a car and think his business thoughts, and talk on the phone, and do his other CEO chores in the back seat of a car. He doesn't have to sit behind a desk to work, so it is not as if the time spent riding in the car is lost. I think there is a role for GA in business, but these guys could easily charter a small bizjet at less cost, or they could ride on a commercial airline at much less cost. For traveling Detroit to Washington, the most economical way is by an airline. If they want loans from the taxpayer, they have to start doing things the economical way and stop wasting money on lavish lifestyles.

Posted by: Mark Spitzer | December 10, 2008 3:25 PM    Report this comment

What they did was not stupid. They already owned the jets before they went to Washington. Why shouldn't they have used what was already at their disposal? This baloney congress started about symbolism is comming from the same people who have run our national debt to over 10 trillion dollars. Not to mention, they fly ONE guy around in a 747! Let me remind you that Chrysler used to OWN Gulfstream. I won't tell you guys the importance of being able to fly your exec's around, you already know that. I think the real reason the auto companies went along with this is to bust the unions. They have been given a perfect excuse to dump their union flight departments and the UAW can't (or won't) do anything about it. GM has been threating to elimanate their flight department for over 25 years. Later when things cool down they will lease jets with a maintance contract.

As far as the Big 3 go. Do you really want to see them go under? You will be at the mercy of the Japanese who will be able to charge 2 or 3 times more (no competition), pull their plants out of the U.S. (why not build cheaper somewhere else) and what will you do about it? They will be the only game in town. Be carefull what you wish for people.

Posted by: dominic accettola | December 10, 2008 3:31 PM    Report this comment

Mark, great comments, but you probably don't realize that the total labor cost (wages and benefits) for the big three average around $73/hour and the average for Toyota and Honda are about $51/hr. The UAW use been sucking the big 3 for scores of years because they were doing well. It's also interesting that Honda and Toyota manufacture in right to work states, while Michigan is a closed shop state, where if there is a union, belonging to the union is a condition of employment. Another point is that it takes more labor to build an American car, because the unions would let the big 3 modernize their plants, because that would eliminate jobs. So, could someone tell me how this is all the CEOs fault and the unions and government never paid a role. It cost GM nearly 1 billion dollars to close the Oldsmobile plant in Lansing Michigan and that was to remove the facilities and make the area suitable for housing. Something I've never seen any other company do.

As far as Barney Frank is concerned, he's one of the Clinton folks that started the melt down in the mortgage industry by pressuring Fannie Mae and Freddie Mack into making bad loans. Then when congress wanted to impose legislative oversight, he helped keep it in committee. It was his committee that was suppose to oversee Freedia Mack and Fannie Mae. Yet, his gay lover was president of Freddie Mack, can you see a conflict of interest here!

Posted by: Dekevin Thornton | December 10, 2008 5:35 PM    Report this comment

The expense of transportation should not only be measured in direct cost, but also in lost or gained opportunity costs. How many more opportunities does he have to make a sale, meet with a supplier, to get a better rate, etc. While those of us in the none sale/exec management have a bit of sour grapes, when I was in progam managemnt I once closed a $10M deal on the golf course. So it can be an essential part of doing business.

Posted by: Dekevin Thornton | December 10, 2008 5:45 PM    Report this comment

I agree with Paul that this isn't good news for aviation, let alone anyone using a business jet. I think NBAA, and all the GA letter groups need to jump on this to tell "our side" of the advantages of privately flown aircraft soon, if not sooner...

Dekevin, If that is true about Barney Frank, this is huge news that should be plastered all over the main stream news media. Gay lover president of Freddie Mack...Wow... Why hasn't Bill O or anyone at Fox hammered this home to us?

Posted by: Coy Jacob | December 11, 2008 6:42 AM    Report this comment

Coy, Bill O did bring it forward, but none of the main stream media would touch it.

Posted by: Dekevin Thornton | December 11, 2008 8:33 AM    Report this comment

The reason no one in the serious news business cares about the issue that Dekevin raises is that it was news in the 1990's, but since Frank and his partner broke up in 1998, it's just too old to matter. Listen to the "debate" between Bill O and Barney Frank, and try to remember that Frank became Chairman of the House Banking committee in 2007. For many years prior to that point, the Republicans controlled congress. I'm not saying that Democrats are not complicit in deregulating the banking industry, but until '07 they were in no position to stop any reforms the Republicans wished to enact.

As far as successful CEOs flying around in private jets, I am for it. However, when a company is nearly bankrupt and the CEO comes begging for a government bailout (I'm talking GM here), it's just wrong to not have already made deep cuts, including the 22M salary and the jet. What these CEOs did (and said) reinforces the public's perception that GA airports are country clubs for rich guys with toys. It's just very bad PR for GA.

Posted by: Mark Spitzer | December 11, 2008 3:49 PM    Report this comment

I used to think AVweb was a responsible group who was smart enough to stay out of politics. Paul Bertorelli's writing, apparently thought out on the fly and with no backing in fact. Demostrates a clear lack of understanding on the history of the auto companies and the problems we face. Bertorelli is the type that would kick the crutch out from under a crippled man and then say the man is lazy and does not want to walk. I have lived all my life in Detroit, I work for one of the big three and have worked for one of the others. The companies and the UAW have not been the reckless, greedy people we have been made out to be. The millions of units we produce every year are sold to Americans who want what we build. We build a quality product at a competive price. We don't control the price of gas, nor do we get a cut on it. And we happen to be the American companies, not those guys from overseas! If congress manages to make American car manufactures go away. Boeing, Gulfstream, Piper, Cessna will be next.

Posted by: dominic accettola | December 11, 2008 5:03 PM    Report this comment

Paul, I work for the industry. I don't appreciate the name calling of our CEO's and I am really tired of the ignorant comments. The Big 3 sell more vehicles than all the transplants combined. Evidently, someone is buying our products. General Motors is the global sales leader. Again, evidently someone is purchasing our products. All three companies have global operations that require travel to the four corners of the earth. How do you expect them to get there?, Delta? Ship?

I doubt if Gulfstream and Cessna support your opinion If the CEO's would have arrived in DC by the airlines or driven, they would have been accused of trying to put on a show. Do you really think they would not have had their corporate fleets brought into question?

If you don't like our products, fine. If you want to remain ignorant of what we do do right, fine. But do all of us a favor and keep your opinion to yourself.

Posted by: Jay | December 13, 2008 1:02 PM    Report this comment

But do all of us a favor and keep your opinion to yourself.<<

Actually, Jay, the very purpose of these blogs is to express opinions. Yours is no more or less valid than mine and I'd never ask you to keep it to yourself. That's why we have a comment section.

Best,

Paul Bertorelli

Posted by: Paul Bertorelli | December 14, 2008 5:33 PM    Report this comment

...the very purpose of these blogs is to express opinions.

Well, Paul, my opinion is that I doubt if you could carry their bags. :)

Jay

Posted by: Jay | December 15, 2008 7:42 PM    Report this comment

I think most of you miss the point. The big three shouldn't be asking government for money to begin with. If they make bad deals with the Union and they end up going broke, tough.

If they should borrow money from Government, especially stupid government, then they need to keep their mouths shut and dance to the music.

The companies have offered to sell their souls to Government. The only question is how much are they willing to sell them for. No more bizjets fleets? Shut up and sell them off. No more big perqs? Shut up and do with out.

I don't think the way a company runs itself if any business of congress. But once the company takes the money, they lose the independence.

Melvin Jones

Posted by: melvin Jones | December 20, 2008 12:20 PM    Report this comment

OK. Let's get back to reality, boys and girls. Open any university-level textbook on business, and you'll discover that modern big business is run by the trifecta of BIG corporate interests, BIG labor, and BIG government. To assess blame for our current state of affairs exclusively on only one third of the formula is, well, asinine.

On a related note, I want all of you respondents to observe that -- to date -- Ford has rejected any such bailout from the Government. Now THAT'S the American way ... tough it out.

Posted by: Phil Derosier | December 20, 2008 9:43 PM    Report this comment

What you seem to be saying, Phil, is that if a company fails, management can blame the government, blame big labor, blame somebody else. Who is too blame for the Lehman Brothers failure? Government? I don't think so. I have seen great manufacturing companies rise and fall (for example, Polaroid and Digital in my home town) and they didn't fail because of labor or government. They failed from management myopia -- their products became obsolete while management was busy dreaming of the good old days.

Sure, the responsibility for the state of the national economy can be spread around. But the company problems rest with the company management. It is very simple: make competitive products at a profit or die.

GM was in trouble long before the economy went bad. If GM gets a bailout, it will need a good turn-around plan, and I hope it can think of one, but I doubt it. Management will be busy blaming labor or some factor beyond their control. But it comes back to this: make competitive products at a profit or die.

The reason it was dumb for the CEOs to show up in private jets with their tin cups out is that everyone is reminded of the AIG execs that got bailed out and then went on a junket. We ordinary Americans tend to feel that the greedy tycoons are just looking for new ways to suck money out of the economy to line their own pockets, because so many of them did that for years. They have to convince us that this is not the case now. Step 1: sell the jets.

Posted by: Mark Spitzer | December 21, 2008 7:54 AM    Report this comment

I still maintain they shouldn't ask government for money. It is truly a deal with the devil. And the devil always plays with a marked deck.

By the way, the only money being sucked out of the economy is the 17 Billion dollars Bush agreed to give to these boneheads. They're to spineless to cut a good deal with the unions, so they want the Government to help them compete against Asian and German companies.

Let them fail and let me keep my money.

Melvin

Melvin

Posted by: melvin Jones | December 21, 2008 10:25 AM    Report this comment

They cut my last comment in here yesterday. Seems like they like to stack the deck in this website. I guess Bertorelli can call people numskulls, but if you call him a moron, well all of a sudden that is over the line.

Posted by: dominic accettola | December 21, 2008 11:08 AM    Report this comment

We deleted your comment because it was outside the bounds of reply rules. I have a thick skin and don't mind being called a moron. (In my world, that's actually kinda mild.)

But please don't direct the name calling at other contributors to this forum. They aren't public figures and don't deserve it. (Auto CEOs are fair game.)

You're welcome to reply. But please follow the reply guidelines.

Posted by: Paul Bertorelli | December 22, 2008 1:59 PM    Report this comment

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