The Nature of The Beast (Gwen Moritz Editor's Note)

by Gwen Moritz  on Monday, Dec. 3, 2018 12:00 am   3 min read

A Facebook friend called my attention to an article on the CBS MoneyWatch website headlined: “GM bought back $10 billion in stock since 2015, double what job cuts will save.” She asked me what it meant.

It means CBS MoneyWatch needs some better reporters and editors.

The story juxtaposed some big numbers — $4.5 billion in savings over the next two years from the major reorganization that General Motors announced last week and the $10.6 billion that GM has spent to buy back its own stock since 2015 — and acted like they had something to do with each other.

The reporters interviewed Mary Lovely, a senior fellow at the Peterson Institute for International Economics, who said the money spent buying back stock might have instead been invested in older plants. But, she said, CEO “Mary Barra thought not.”

I rather doubt Barra decided to eliminate up to 14,000 jobs and shut down five automotive plants on a whim — or without strong consensus from the board of directors.

William Lazonick, professor of economics at the University of Massachusetts Lowell, made an even more baffling suggestion — that GM “could have put that into the people who build their cars.” Paying labor more to build cars for which there is an inadequate market does not strike me as good business, but, of course, I’m not an economics professor.

What GM did is neither contradictory nor counterintuitive. It is a publicly traded corporation whose officers and directors have a fiduciary responsibility to shareholders to manage the business for sustainability and profitability. Buying back stock, before and after the tax law that reduced its tax burden, is a time-honored way of improving a stock’s value — and that can still be true even if, as the CBS story noted, the stock price had not actually improved. That’s a common condition of late; without the buybacks, GM’s stock price would presumably be lower.

Streamlining management, discontinuing unprofitable products and shifting production to more efficient plants are also management fundamentals. The pain to the individuals affected is real, but GM is merely behaving in the way corporations behave to be sustainably profitable over time. It may be a brilliant plan or a disastrous one or something in between, but the reorganization really has nothing to do with the stock buyback, no matter what the CBS headline suggested.

Meanwhile, the businessman-president that so many conservatives longed for also seemed surprised that a corporation had acted like a corporation.

“Very disappointed with General Motors and their CEO, Mary Barra, for closing plants in Ohio, Michigan and Maryland. Nothing being closed in Mexico & China. The U.S. saved General Motors, and this is the THANKS we get!” President Trump tweeted, followed by a threat to end subsidies for GM’s electric cars.

Surely the president knows the subsidy isn’t just for GM’s electric cars and that GM has almost exhausted its subsidies anyway. Scolding GM for not showing more gratitude to federal taxpayers is fairly amusing for a man who declared that not paying taxes was “smart.”

Trump also gave GM a stern instruction to keep its Lordstown, Ohio, plant operating. “They better put something else in,” he told reporters. But Ohio’s Sen. Sherrod Brown, a Democrat, used Twitter to remind his constituents that GM’s decision to retain foreign operations while shutting down plants at home was not just predictable but actually incentivized by the new tax law.

“As the Senate debated the GOP tax bill one year ago, senators listened as an expert witness confirmed that the bill would encourage corporations to close up factories here and move overseas,” Brown wrote in the first of a series of tweets.

“So no one in Washington should be surprised that the very same day GM laid off workers in Lordstown, Ohio, it announced plans to make the Blazer in Mexico. And now, after taking its tax windfall, GM is eliminating 14,000 American jobs.”

GM issued a concise statement to CBS MoneyWatch that explained everything. It said the corporation was “building on the comprehensive strategy laid out in 2015” and that it would “appropriately reinvest in the business, maintain our strong investment grade balance sheet, and return all available free cash flow to our shareholders.”

It’s the nature of the beast.

Email Gwen Moritz, editor of Arkansas Business, at and follow her on Twitter at @gwenmoritz.



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