Merry X-mas Elon Musk: GM Just Gave Tesla a Free Ride!

In the spirit of the holiday season, General Motors on November 28th announced a $10 billion stock buyback. What a lovely gift to its top officers, who receive most of their compensation through stock incentives! What a lovely reward for the hedge fund shareholders who will cash in their recently purchased GM stock for handsome profits!

But the greatest gift of all goes to Elon Musk and Tesla as GM decides not to use that money to increase its competitiveness during the historic conversion to electric cars and trucks.

It seems that GM has more urgent concerns than making cars—like toadying up to Wall Street, for example. As CNBC notes, “General Motors is working to regain Wall Street’s confidence in 2023 with several investor-focused initiatives following a tumultuous year.”

You might think that GM would be worrying more about the confidence of consumers, not hedge funds. But apparently not.

How is it OK to siphon $10 billion out of GM as it struggles to compete, but it’s debilitating for GM to provide $9.3 billion in increased wages and benefits to those who make the cars and trucks?

Let’s recall that stock buybacks were once considered a form of stock manipulation and were limited to 2 percent of corporate profits by the Securities and Exchange until 1982. Then, as part of the Reagan administration’s deregulatory efforts, SEC rule 10b-18 was adopted, which made it legal to pour corporate profits into stock buybacks.

Wall Street stock-sellers and top CEOs, who are paid with stock incentives, love stock buybacks because in most cases the prices of those stocks immediately rise. GM’s shares, for example, climbed 11 percent in one day after its stock buyback announcement. Today, companies spend nearly 70 percent of profits on buybacks.

GM is a stock buyback recidivist.

Instead of increasing investments in more fuel-efficient vehicles to match the foreign competition between 1986 and 2002, GM conducted $20.4 billion in buybacks. And since it was bailed out by taxpayers in 2009, GM has moved another $25 billion into stock buybacks, including the $10 billion recently announced. Had that money been wisely invested in research and development, might GM have become a serious competitor to Tesla? We’ll never know.

No problem, says Steven Rattner, the “Car Czar” who led President Obama’s team that bailed out GM during the 2008-09 financial crisis. Rattner, writing in 2018, claimed that stock buybacks are an efficient use of capital:

Yes, [stock repurchases] often bump up share prices. But they are really a consequence of the vast cash reserves — $2.4 trillion and rising — held by American companies. When top executives don’t see more attractive investment opportunities, at least not in the United States, it can be a prudent use of that cash to buy back shares in their own companies.

As companies return capital to shareholders through buybacks or dividends, the money doesn’t disappear. Its recipients typically reinvest it in other opportunities. That’s not short-term thinking; that’s efficiency.

Of course, “the money doesn’t disappear.” In the vast majority of cases, it goes straight into the pockets of ultra-rich stock-sellers and the executives who order the buybacks.

Five years later, during the recent United Autoworkers strike, Rattner, who knew GM was sitting on a pile of cash, wanted to protect it from the workers:

GM and Ford and Chrysler are doing quite well at the moment. They have cash. They have profits. They have the ability to pay them more, but they also have to compete against other companies. And in the South, you have companies like Toyota and Honda that don't have unions at all. In Mexico, you have workers making literally $9 or $10 a day - and are very productive, according to what auto executives tell me. And so, if the Detroit companies have an excessively high burden of wage costs or fringe benefit costs, then they can't compete. They lose car sales. Ultimately, the workers lose jobs, and the jobs move to these other places.

How expensive is the new contract with the United Autoworkers?

GM claims it will cost $9.3 billion. But, as GM moves $10 billion out of the company, Rattner is nowhere to be found.

How is it OK to siphon $10 billion out of GM as it struggles to compete, but it’s debilitating for GM to provide $9.3 billion in increased wages and benefits to those who make the cars and trucks?

For apologists, like Rattner and his hedge fund comrades, that $10 billion in stock buybacks is not a cost and therefore poses no harm at all to corporate competitiveness, not the way higher worker compensation does. That’s because the barons of Wall Street and GM’s top officers believe they earned all that money because they, and they alone, made all the moves necessary to extract that wealth from GM. And besides, doesn’t it turn out to be a win/win? Didn’t both the workers and the bosses get nearly equal pieces of the pie.

Sadly, it appears that a major part of GM’s business model is to produce stock buybacks, not just motor vehicles.

At GM, however, stock buybacks could pose a real threat to job security. Right now, GM’s 56,000 2023 electric vehicle (EV) sales (through August) pale in comparison with Tesla’s sales of 1,137,000 EVs. By issuing massive stock buybacks instead of investing in the development and production of highly competitive EV cars and trucks, GM is risking tens of thousands of jobs and its future.

In the research done for my book, Wall Steet’s War on Workers, we found that stock buybacks and mass layoffs are connected. When corporations loot themselves (pressured by Wall Street hedge funds) by issuing stock buybacks, they often cover the costs by laying off workers. In fact, Reuters reports that GM announced “cuts of nearly 200 employees due to the United Auto Workers strike.” Why is the strike identified as the cause and not the buybacks?

Sadly, it appears that a major part of GM’s business model is to produce stock buybacks, not just motor vehicles. The price of this wastefulness and greed, so lucrative to executives and Wall Street, is likely to be borne by the workers through more mass layoffs.