Company Cars

MAJOR CROWDING IN IDF LEASING
Company cars for top IDF brass an iffy proposition

Israel’s biggest company is about to buy its company cars. The IDF is
in the middle of a tender meant to obtain about 10,000 fleet vehicles
for NCOs and for officers of the rank of major and up.

The cars are differentiated by rank; while the actual models have not
been chosen, majors will get subcompacts; lieutenant colonels a small
sedan; colonels will get a compact family sedan, and brigadier
generals a mid-sized car.

The phenomenon of company cars is worthy of study both in general, in
the context of the army, and with regard to the particular classes of
cars chosen by the IDF. My seemingly paradoxical view is that giving
officers and NCO’s fleet cars is wasteful, yet the cars they are being
given are too small. It’s like the old joke Woody Allen told: “The
food is terrible – and the portions are so small!” Yet there is
sometimes wisdom in Woody Allen jokes, and this may be one of those
cases.

Let’s start with Ec 101. This is always a good place to start though
usually a bad place to stay. We learn in introductory economics that
any kind of in-kind benefit is inherently welfare reducing. Each car
recipient could be offered the cash value of the leasing together with
the option of leasing from the IDF; if any prefer the cash, the
program is wasteful since some the officers could be made better off
at lower expense. My guess is that the vast majority of officers would
prefer the cash. Either they wouldn’t spend that money, if they had
it, on a new car right now (likely the majority); if they did, they
would prefer a different car, probably a larger one (almost all of the
rest). How many would really choose to spend the money on exactly the
kind of car the IDF is providing for them?

Of course some of this is offset because of the economies of scale of
having a fleet of cars. The IDF gets preferred rates due to their
large purchase. But they could still get preferred rates if they
leased fewer cars of wider variety to enable officers to choose cars.
More importantly, fleet cars have very large diseconomies. Since the
army, not the officer, incurs the depreciation in value, staff cars
(like all fleet vehicles) tend to be driven very hard; to the best of
my knowledge the IDF also pays for gas so that they tend also to be
driven many more miles than a comparable private car.

So the question is: why do they do it? Why does the IDF, as well as
many large corporations that provide fleet cars or executive cars?

One good reason for an employer to supply an employee with something
is that it is in the employer’s own interest. Officers have to be
present at frequent meetings and events all over the country, and the
army wants to make sure they have a reliable means of transportation
available. In the good old days officers had a staff car with a
driver, which was certainly far more wasteful of resources. (I wonder
when this practice stopped. Do high IDF officers no longer have their
faithful sidekicks? Are there no enlisted men left with the cushy job
of driving around a commander? Or is this luxury reserved for officers
of higher rank?) Of course for this it would be enough to require all
officers of a certain rank to have a car, but we have narrowed the gap
considerably.

Another possible, and less generous, motivation is “Meir’s law”, which
states that if you want to do mischief you try to move it off the
balance sheet. If you want to give officers a higher salary but don’t
want the higher salary to appear on the payroll, you can give them a
company car.

And what about esprit de corps. The army, more than any other
employer, wants to inculcate a spirit of uniformity and discipline. If
everyone has the same uniform, and if rank is declared by the
epaulets, then why not go a step farther and have everyone get a car
from the same fleet, and have rank distinguished by the kind of car?
Often company cars are referred to as a “perk”, or perquisite, meaning
they are a status symbol – like a corner office. The army pays people
in status as well as in money; that’s why armies around the world are
so top-heavy with brass.

This is a valid argument as far as it goes, but it seems to me there
is a hole in it. I gather from the articles on the tender that your
average captain is not entitled to a fleet car. So he is going to
arrive in his own family car, which is probably a lot nicer than a
Daihatsu Sirion (a leading contender for the car for majors). In fact,
plenty of average Israelis are driving cars nicer than a Mazda 3, a
leading contender for colonels. So the objective of having the luxury
of the car arriving at the guard gate commensurate with the rank of
the officer inside will be foiled. The base commander will arrive in a
Mazda 3, while the captains (who don’t get fleet vehicles) will show
up in MPVs.

If I were minister of defense I would probably look for a cheaper and
more flexible way of providing top brass with transportation, but the
IDF’s rationale for providing company cars is probably better than
that of many private companies that provide executive cars, so the
decision is not outrageous. But if they are going to do it, I think
they should do it right. If someone stuck me with a tiny Sirion, I
would demand the right to trade up at my own expense to something a
little more roomy, and I think IDF majors deserve this option too.