The writer is a Los Angeles freelancer and former Detroit News business reporter. This column first appeared on his blog, StarkmanApproved.com.
By Eric Starkman
Might you remember a guy named Shawn Fain. Yeah, that Shawn Fain, the tough talking UAW president who graced the airwaves for several months because of his “audacious” pay demands that supposedly had GM CEO Mary Barra quaking in her designer leather jackets. “Accepting (Fain’s) unsustainably high costs would put our future and GM team members’ jobs at risk,” Barra warned.
Barra proved herself a corporate Br’er Rabbit. GM ultimately agreed to give Fain a contract providing for a minimum of 25% percent raises, allowing him to boast of a “record” settlement and claim that he had extracted every possible penny from the automaker. The ink was barely dry on the contract before Barra was crowing to Wall Street that the pay raise was no biggie, and that with some improved manufacturing and salaried employee efficiencies, combined with lower marketing investments, the “unsustainably high” labor costs could easily be absorbed.
As for Fain’s claims that he had secured new investments to create thousands of jobs, Barra said that 85% of them were previously announced and already factored into the company’s long-term capital plan.”
Barra playing Fain for a fool shouldn’t come as much of a surprise, as she and her CEO predecessors never showed much respect for the UAW’s leadership in the first place. Little wonder GM has faced so much labor unrest.
When Barra announced in April 2021 that she was investing $1 billion to build electric cars in Mexico, she couldn’t be bothered to give the union a heads up.
“At a time when General Motors is asking for a significant investment by the U.S. government in subsidizing electric vehicles, this is a slap in the face for not only UAW members and their families but also for U.S. taxpayers and the American workforce,” Terry Dittes, UAW’s then vice president and director of the General Motors Department, said at the time.
Barra’s investment in Mexico, where GM is that country’s largest automotive manufacturer, was indeed a slap in the faces of U.S. taxpayers, but Barra has followed up with a powerful body blow and she packs a mighty mean punch. Barra announced last week that GM will spend $10 billion to buy back a big chunk of the company’s stock and increase the dividends it pays to shareholders.
On the audaciousness front, Barra has shown Fain to be a rank amateur.
GM is one of America’s biggest corporate moochers. The company would have failed in 2008 had the Obama Administration not bailed out the company and it has since received tens of billions more in taxpayer grants, subsidies, and other sweetheart goodies. GM’s failed electrification attempts have been heavily subsidized by U.S. taxpayers, and they take a $7,500 hit on almost every EV Barra manages to sell, including the vehicles she manufactures in Mexico.
Barra loses money on the EVs she sells, so it’s a lose-lose proposition for GM investors, as well as U.S. taxpayers. If Barra had her druthers, she’d be exclusively focused on selling her gas guzzling trucks and SUVs, but her good buddy President Biden has an EV vision for the U.S. automotive industry, which Barra wholeheartedly embraced with her promise to sell only EVs by 2035.
Given that EVs are the future and Barra has failed so miserably trying to manufacture and sell them, GM’s stock understandably fared poorly. Compounding Barra’s dismal EV performance is the Cruise driverless taxi business debacle she’s also responsible for. Under Barra, GM doesn’t appear to have much of a future beyond selling high margin, gas guzzling trucks and SUVs. If GM’s stock remained in the gutter, it would be increasingly difficult for the media to promote its narrative that Barra is one of America’s best CEOs, as Fortune editor Alyson Shontell and others maintain.
GM’s stock until last week was down 14% for the year, while the S&P 500 was up 19%. To goose the stock price and mitigate the damage of her failed leadership, Barra gleefully announced her $10 billion stock buyback.
To put that in perspective, $10 billion exceeds the “unsustainably high” $9.3 billion in increased labor costs that GM will absorb over the 4-year, 8-month term of its new UAW contract. Wall Street analysts were concerned about paying GM workers $9.3 billion more in wages and benefits, but they were gaga about Barra spending even more money to bribe investors not to abandon GM’s flailing stock.
Stock buybacks boost share prices, at least in the short term, because they reduce the number of shares outstanding. Barra’s ruse worked as planned: GM’s stock immediately rose about 10%. At this writing, GM was trading at about $33, roughly the price of the company’s initial public offering price in 2014, but still down 17% from what GM was trading at when Barra took over two years later.
Wall Street financiers argue that a CEO’s primary obligation is to deliver value to their shareholders, and Barra generating a 10% pop to GM’s stock price is definitely in that spirit. My problem with “it’s all about the shareholders” is that investors are never held responsible for ill-gotten gains resulting from CEO mismanagement and malfeasance.
As an example, Wells Fargo shareholders for years made a killing under the leadership of John Stumpf, who was hailed as a visionary for aggressively growing the banking company’s business and attacking regulators for holding him back. When it was revealed that Stumpf’s growth was the result of opening phony bank accounts and other questionable business practices, Wells’ shareholders weren’t held responsible for the actions of the CEO who was serving their interests.
Admittedly, Wells’ stock price declined, but investors who sold the stock at a loss because of the decline could write off their losses against their taxes. Savvy investors who sensed something was amiss when the Los Angeles Times first reported that Wells was opening phony bank accounts and wisely sold their stock were allowed to keep all their profits.
When GM failed in 2008, GM shareholders and bondholders were wiped out, as they deserved to be for investing in the poorly managed company that existed for the enrichment of its management. But the Obama Administration opted to bail out the company because of the tens of thousands of workers it directly employed and countless more supplier jobs that were dependent on GM.
Similarly, the Biden Administration, along with Michigan Governor Gretchen Whitmer, have showered GM with billions of dollars to finance the company’s EV conversion, which isn’t generating the promised oodles of “green jobs,” at least in the U.S. The rationale for the investments is that EVs are critical for addressing climate change and that GM needs taxpayer handouts to compete with Tesla and vehicles from China, whose communist government had the sagacity to foster a world-class EV manufacturing industry more than 30 years ago.
If EVs are critical to addressing climate change, then all of them should be eligible for lucrative tax breaks, not just those manufactured in North America. Hyundai and its Kia division sell more EVs than GM and Ford despite not qualifying for $7,500 in tax breaks. Imagine the sales volume of Hyundai and Kia EVs if they did.
Hyundai has reaffirmed its ambitious EV expansion plans, spending more than $18 billion to increase production in South Korea and the U.S. Toyota has significantly ramped up its EV investments, particularly in the U.S. where it has committed to spending more than $8 billion on U.S. battery plants and manufacturing an electric SUV in Kentucky. The company also plans to sell its massive investments in various affiliates valued at some $110 billion and use the proceeds to fund its electrification and diversification efforts.
With rivals doubling down on their EV investments, one should reasonably expect that Barra would be hoarding her shekels and trying to remain competitive. Instead, she’s cut back on GM’s planned EV expenditures and earmarked $10 billion to bribe investors not to clamor for her removal. Barra also said she hopes to build even more profitable gas guzzling trucks and SUVs. Hard as I’ve tried, I have yet to find even one environmentalist voicing outrage.
Barra’s undeniable accomplishment was transforming GM into a highly profitable purveyor of high margin trucks and SUVs that Consumer Reports ranks of mediocre quality. The company is poorly poised for the auto industry’s inevitable EV transformation, but Barra, 61, will be long gone before Americans wake up to how she ultimately destroyed GM.
Defenders of Barra’s obscene $58 million in compensation these past two years and the more than $200 million she’s received in her nine years on the job are always quick to point out that much of her largesse is stock options. Barra will be among the biggest beneficiaries of her $10 billion stock buyback, yet the World Socialist Website is the only news site to share my outrage about her selfish enrichment.
The legacy media quite rightly likes to talk about societal inequities. A small-time drug dealer convicted of peddling opioids will face some serious jail time, but McKinsey, which had its tentacles in all aspects of the opioids crisis, got off with a mere $573 million settlement. When economically disadvantaged youths smash the windows of a luxury goods store and loot the place it’s called a “smash and grab.” When a CEO loots the treasury of a public company to distribute the money to herself and her shareholders, it’s euphemistically called a “stock buyback.”
In my mind, the societal consequences of Barra’s $10 billion stock buyback are more harmful to America than any smash and grab I’ve yet to read about.