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:
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