Thursday, March 12, 2015
What's Good For GM Is Only Good For Shareholders
The CEO of GM once claimed that what was good for GM was good for America. In some sense he was correct. GM's market success was good for its employees and also for its suppliers. GM has recovered from its near death experience thanks to support from the US government. It recently, announced that it will buyback $5 billion of its stock. It made this decision in response to four hedge funds that want to cash in on their investment in GM. Stock buybacks will reduce the number of shares outstanding and make the remaining shares more valuable. Four hedge funds, which hold 2% of GM shares, have the power to force GM to buyback its shares instead of investing those funds in its business. What's good for GM is not necessarily good for its employees or for its suppliers. GM joins the legions of other large US corporations who have used share buybacks and dividend payments to return 90% of their profits to their shareholders. Investing in the longer term future of the corporation is not in the interest of shareholders who are primarily concerned with the current share price.