SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
5
#000000
#FFFFFF
gm
Merry X-mas Elon Musk: GM Just Gave Tesla a Free Ride!
You might think that GM would be worrying more about the confidence of consumers, not hedge funds. But apparently not.
Dec 12, 2023
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.
Thank goodness the UAW has won the historic right to strike over plant closings. They’re going to need it.Keep ReadingShow Less
The UAW’s Game Changer: The Right to Strike Over Mass Layoffs
This historic victory could have significant benefits for all working people.
Nov 14, 2023
The United Auto Workers has scored major victories in its new contracts with the Big Three automakers: GM, Ford, and Stellantis. Not only did the union win massive wage increases and other critical demands, but it also won the virtually unheard of right to strike over plant closures. This historic victory could have significant benefits for all working people.
Since the dawn of capitalism, plant closings and mass layoffs have disrupted working-class lives. The problem rapidly accelerated when Republican and Democratic administrations, starting with Reagan in 1980, freed Wall Street from regulations that discouraged job-killing leveraged corporate takeovers and stock buybacks. While researching my upcoming book, Wall Street’s War on Workers, we found that more than 30 million workers have been subjected to mass layoffs since 1996.
The auto industry was one of the first to institute mass layoffs as mismanagement and stiff competition from abroad in the 1970s cut into the Big Three’s market share. Until this recent UAW contract, unions mostly had been unable to stop mass layoffs. Instead, they only had the contractual right to conduct “effects bargaining,” negotiating to secure severance payments for the workers who would be let go. Even if they had wanted to strike, in most cases it would have been prohibited by their contracts.
The UAW has changed that game. If GM or Ford or Stellantis decide to shut down a facility going forward, they will now be forced to think twice. Is the risk of a national strike that could cost them billions, worth the short-term savings that come with layoffs? Or might it make more sense to find another use for the facility and keep everyone working? The new UAW contracts with the Big Three bring this entirely new financial dynamic into the mass layoff game. Already, Stellantis has agreed to reopen its plant in Belvidere, Illinois, and rehire all 1,200 laid-off workers there.
As Stellantis just demonstrated by reopening its Belvidere facility, large corporations are far more flexible than their public rhetoric suggests.
But doesn’t forcing the companies to keep those workers employed weaken them and make them less competitive? That’s what corporations always claim… at least until persuaded and pressured to do otherwise. However, corporate leaders know that mass layoffs often have little to do with production and sales. In many cases, mass layoffs are used to squeeze more cash out of the company to finance stock buybacks – a legalized form of stock manipulation that enriches top corporate officials and Wall Street stock-sellers (see Mass Layoff Capitalism). For example, in the last 12 years, GM has poured more than $21 billion into stock buybacks. No one knows for certain how many jobs were lost to help finance those buybacks, but the number is certainly significant. In 2015 alone, the company laid off 14,000 employees.
Our research suggests that in many, if not most, cases, stock buybacks and/or leveraged buyouts precede mass layoffs. Companies like Toys “R” Us and Bed, Bath and Beyond have been ruined by that process.
But what if an auto company really can’t sell one of its products? How then could it possibly keep a plant open?
As Stellantis just demonstrated by reopening its Belvidere facility, large corporations are far more flexible than their public rhetoric suggests. They are adept at finding ways to cut costs by outsourcing work to non-union labor, here and abroad. If pressured, they have the capacity to redirect that production to facilities that are being shut down here and re-employ union labor.
An excellent example of this flexibility can be found at Siemens Energy. The company decided in 2020 to quit the oil drilling and fracking businesses and announced layoffs of approximately 1,700 U.S. workers and another 3,000 thousand in Germany. In the U.S., all the layoffs took place and the unions involved conducted effects bargaining. But in Germany, where workers hold half the seats on the Siemens board of directors, the union won an agreement that there would be no compulsory layoffs. Instead, the company was allowed to try to entice workers to leave voluntarily with significant pay and benefit packages. The company also agreed to put new production into the six facilities that were originally scheduled to be shut down.
The UAW is forging a new path to build real union power to stop corporate mass layoffs through the right to strike.
In the U.S., workers do not have that kind of leverage on boards of directors. In Germany, it is mandated by laws urged upon them by the U.S. after WWII. The UAW is forging a new path to build real union power to stop corporate mass layoffs through the right to strike.
Shawn Fain, the visionary and effective UAW president, wants these union successes to spread far and wide. He is urging every union to have their contracts end on the same date—May 1, 2028—the internationally recognized Labor Day, which honors the 1892 Homestead strike for the eight-hour work day. With concerted pressure, perhaps the labor movement would develop broader, basic common demands that support the working class. Stopping needless mass layoffs should be near the top of the list.
Can you imagine if every union had the right to strike over mass layoffs and then succeeded in protecting job security? That might lead to an explosion of workers wanting to join unions. We might even see a repeat of a legendary story from the diary of a union organizer during the 1940s: “Today I organized 12 new local unions,” he wrote. Of course, he didn’t go out and organize each one on his own. They were running into the organizer’s office requesting union charters.
Today, for the first time in a long, long time, there’s a decent chance that workers will be running to the UAW.
Keep ReadingShow Less
The Inside Story of How Wall Street Fleeced GM Autoworkers and Taxpayers
Stock buybacks have become the main goal in life for corporate executives and activist stock sellers. And this sickness is spreading.
Oct 03, 2023
The institution casting a broad shadow over the UAW strike against the Big Three automakers is Wall Street. GM workers and those of us who have longed for the production of high-quality and affordable electric cars to combat global warming could not have invented a more damning story than the reality of how the financiers fleeced us.
The story starts back in 2008, when the auto industry was going bankrupt due to the financial crisis that Wall Street’s reckless gambling had caused. Six million workers lost their jobs in six months through no fault of their own. Motor vehicle sales fell by nearly 40 percent and as bankruptcies loomed, another three million more auto industry jobs were at risk.
The federal government intervened with a massive bailout, eventually loaning the companies more than $81 billion. To reorganize the industry, the government wanted more financial expertise. So where did it turn? To Wall Street! The financial foxes were hired to overhaul the hen house.
The UAW strike is illuminating a type of financial insanity that has gripped our economy.
To lead 1990s Presidential Task Force on the Auto Industry, the Obama administration recruited Steve Rattner, a Wall Street investment banker, whose net worth was $188 million. (A year later, we learned a bit how Rattner became so wealthy. He was charged by the Security and Exchange Commission in a pay-to-play scheme to obtain investments from New York’s largest pension fund and was forced to pay a $10 million fine.)
Rattner, dubbed the Car Czar by the media, recruited a 37-year-old Wall Street “turn around” expert, Harry J. Wilson, to guide GM to solvency. Wilson joined the federal task force, he claimed, out of a lofty sense of noblesse oblige. As he wrote to Rattner, “I have a very deep interest in public service, particularly given the good fortune I have enjoyed in my own life…” Wilson’s good fortune continued to follow him to GM. At taxpayer expense he would learn everything there was to learn about GM and then use it to fleece the company a few years later.
The bailout’s net cost to US taxpayers was $11. 2 billion, while autoworkers absorbed $11 billion in reduced labor costs. In exchange for the survival of their jobs, workers were saddled with a bitter decade-long wage freeze, the elimination of long-held cost-of-living adjustments, and reduced wages and benefits for new hires. This led to a 19.3 percent loss of real wages (after accounting for inflation) from 2008 to 2022). The UAW’s current request for a sizable wage increase is to make up for more than a decade of lost ground.
From a financial perspective, the bailout was a success. GM, after losing $38.5 billion in 2008-09, earned $16.7 billion in 2010. By 2014, GM had $29.5 billion in cash on hand, a tidy sum with which to enter the budding competitive race against new firms like Tesla to produce affordable electric vehicles.
But from Harry J. Wilson’s perspective, the GM hen house had far too many eggs. After returning to Wall Street from public service, he set his sights on GM’s cash.
First, Wilson purchased 30,000 GM shares worth about $1.1 million at the time. His goal was to press GM to conduct a stock buyback as soon as possible. (A stock buyback in effect moves cash from the corporation to stock-sellers. By reducing the number of outstanding shares, it drives up the price of each share so that Harry and other large financial entities can cash out quickly and with sizable profits.)
He then cut a deal with billionaire David Tepper, whose Appaloosa hedge fund owned $300 million in GM stock. Wilson also worked out arrangements with several other hedge funds, including Taconic Capital, which owned another $120 million worth of GM shares. In each arrangement, Wilson would receive a performance fee and a share of the profits should he succeed in forcing a GM stock buyback. The hedge fund group also agreed to cover up to $1 million of expenses incurred by Wilson over the next year.
Wilson then pushed GM to commit to an $8 billion stock buyback. When GM announced buybacks shortly thereafter Wilson and his Wall Street backers did even better than expected. GM went on to announce a $5 billion in buybacks in March 2015, another $4 billion later that year, and another $5 billion in 2017.
The business of American business is to create stock buybacks for top executives and for looting investors.
So, while Tesla was straining to sell 50,000 electric cars in 2015, GM was busily opening up a new ultra-luxury production line of stock buybacks that enriched Harry J Wilson and his Wall Street compatriots, and GM executives who were compensated with stock incentives. In the last 12 years, GM has spent $21 billion on stock buybacks rather than additional investments in greener vehicles. Not coincidently, in 2022 GM sold 39,096 electric cars, while Tesla produced 32 times more ( 1.31 million).
GM CEO Mary Barra has reaped an average of $41.8 million a year for the past four years in total compensation. “My compensation,” she said, “92 percent of it is based on the performance of the company,” She means that 92 percent of her income comes from stock incentives. The “performance of the company” is measured for compensation purposes by its stock price, which she is able to manipulate and raise through stock buybacks. The more GM engages in stock buybacks the higher the price of their shares, and therefore, the higher the pay of those executives who are paid with stock incentives tied to the price of the stock.
The strike is shining a bright light on a type of financial insanity that has gripped our economy. Stock buybacks have become the main goal in life for corporate executives and activist stock-sellers like Harry J. Wilson and his hedge fund raiders. Their looting adds nothing of value to their companies, yet this sickness is spreading. In 1982 only 2 percent of corporate profits were used for stock buybacks. Now, nearly 70 percent of all corporate profits go to stock buybacks instead of research and development, environmental controls, and worker health and safety. And certainly not to provide job security nor livable wages. Increasingly the business of American business is not to make things and provide services, but instead to create stock buybacks to benefit top executives and looting stock-sellers.
Hopefully, the UAW strike will move us one step closer to outlawing any and all stock buybacks.
Keep ReadingShow Less
Most Popular