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harry j wilson
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.
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