Merry Christmas '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.  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 would think that GM would be worrying more about the confidence of consumers, not hedge funds. But apparently not.

Let’s recall that stock buybacks were considered a form of stock manipulation that was limited to two percent of corporate profits by the Securities and Exchange Commission 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 the announcement. Little wonder that today, companies spend nearly 70 percent of profits on buybacks.

GM is a stock buyback recidivist.

Instead of increasing investments in 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, claims 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.” It goes straight into the pockets of ultra-rich stock-sellers and the executives who order the buybacks. These stock-sellers then raid another company to engineer more stock buybacks. Rather than reinvesting to make the economy more productive, the raiders have one and only one goal — to extract wealth from corporations to enrich themselves. The net results are weaker corporations that often make ends meet by resorting to mass layoffs.

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?

AT GM, however, stock buybacks could pose a real threat to job security. Right now, GM’s 56,000 2023 EV sales (through August) pale in comparison with Tesla’s sales of 1,137,000 electric cars.  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 Street’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, so lucrative to executives and hedge funds, 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 will need it.

PS. The results of our CEO-to-worker pay poll are in:

45 percent chose a ratio $10 to $1 or lower.

24 percent split equally between $20 to 1 and $50 to 1

23 percent chose from $50 to 1 to $300 to 1

7 percent chose “Whatever the market decides”

That’s quite a difference from the current reality of over $800 to $1!

Thank you for your participation

Les Leopold is the executive director of the Labor Institute and author of the forthcoming book “Wall Street’s War on Worker s: How Mass Layoffs and Greed Are Destroying the Working Class and What to Do About It.”

All proceeds from the book and from Substack subscriptions go to the Labor Institute’s Political Economy for Workers educational projects, including a program for Amazonians United. If you pre-order Wall Street’s War on Workers (from Amazon) here you will be helping to provide stipends for Amazonians United workers to take time off from work to attend these programs.