The Ford (F) CEO who shepherded the company through the meltdown of the auto industry, Alan Mulally, has received his reward: $56 million in stock and options. It's a huge payday, and almost no one who knows anything about the car business would begrudge Mulally his money.
But because it's tied to stock, you also have to ask if the overall auto market should get some credit -- and whether Mulally should get even more.
At one point during the depths of the Detroit Meltdown, Ford was trading at around $1.25, prompting the predictable witticism, "You want fries with that?" The stock has recovered nicely and is now up around $14. As the car market recovers, it should double. Mulally's daring move with Ford was to borrow billions before the credit markets seized up, giving the company enough operating cash to avoid taking the government bailouts in 2009.
In other words, he bet the farm. But he also needed the government to put a bottom on the collapse of the U.S. industrial machine.
The auto bailouts were really industrial policy in action
America builds a lot of things, but nothing symbolizes our industrial might more than automobiles. In 2009, we were on the verge of seeing General Motors (GM) and Chrysler enter bankruptcy, and while GM might have made it out, the process could have taken years. Chrysler was headed for liquidation. Ford relies on the same supply chain as its Motown rivals, so the loss of both GM and Chrysler would have driven its stock even lower.
The auto market wouldn't have been able to recover in the U.S., because no one else -- not the Japanese, not the Germans -- could take up the production slack that a decimated GM and Chrysler would have left behind. By spending $50 billion to bailout GM and $14 to arrange a shotgun marriage between Chrysler and Fiat, the taxpayer effectively rescued Ford, as well.
So does that mean Mulally shouldn't get paid?
In this sense, Mulally was a partner in the bailouts. The management of GM and Chrysler was abysmal. By contrast, Mulally's preemptive strike on Ford's looming cash crunch was desperate genius. His business acumen, and reading of trends in the credit markets, enabled the government to basically bail out Ford for free.
Consider the counter-scenario and suppose that Mulally didn't use all Ford's assets as collateral to secure capital before the crisis. Ford would then have been in as bad a shape as GM (and possibly worse) in 2009. This could easily have added another $30 billion to the bailout price tag and in all likelihood sealed Chrysler's doom.
Mulally for Treasury Secretary
Now that Mulally has been with Ford for five years, there's some talk of succession. It wouldn't be too difficult to argue that, if he decides to leave (and it's clear that every single Ford employee would rather he stay), he could follow the path of another innovative Ford leader and move to Washington. Robert McNamara helped saved Ford in the 1950s before he became a controversial (but foresighted) secretary of defense under JFK.
I can see Mulally as a very effective Treasury Secretary and an antidote to the financiers and career financial bureaucrats we're had of late. Running Treasury is about understanding how the entire U.S. economy functions, not just the Wall Street part. Mulally knows well two of the country's industrial cornerstones, aviation (from his time at Boeing) and automobiles.
So Alan deserves quite a bit more than his $56 million from Ford. He deserves a call from the White House.