Detroit automakers are spending money on shareholders by buying back large shares

General Motors, Ford and Stellantis are in a race that investors are cheering now but may consider foolish in a few years.

The three spent a combined $22.7 billion last year on buying back their shares and paying dividends. It’s a remarkable sum for companies that were advocating poverty just a few months ago, when the United Auto Workers union demanded — and ultimately won — more expensive labor contracts.

It’s also a curious use of cash, considering how far behind these automakers have fallen in the shift to electric vehicles. Even with Tesla and China’s BYD nipping at their heels, the Detroit Three are increasingly hedging their bets on battery-electric models. While their early bets have been big money losers so far, scaling back investments and spending on shareholders puts their long-term future at risk.

GM carried out much of its exuberance toward the end of last year, when CEO Mary Barra announced the company’s largest buyback plan ever and raised the dividend by a third.

It would be one thing if GM had money to burn pulling off the “breakout year” for electric cars that Barra predicted in early 2023. But that wasn’t the intention.

GM missed its EV production goal by a mile. The joint venture battery factories were plagued by persistent production problems, and as the year drew to a close, buggy software left the company with no choice but to halt sales of the new electric Chevrolet Blazer shortly after launch.

Ford also didn’t have the year it hoped for with EVs. It was forced to cut prices on its Mustang Mach-E SUV and F-150 Lightning pickup in an effort to keep up with rivals led by Tesla. By the end of the year, the company cut its weekly production plan for the plug-in truck in half.

Ford’s EV division ultimately lost $4.7 billion this year and forecasts a deficit of at least $5 billion by 2024. Still, the company spent roughly that amount paying dividends, a revenue stream that is particularly important to the Ford -family.

While GM and Ford have focused on Tesla and largely missed, Stellantis has barely taken a bat in the US. That will change this year, as the company plans to launch eight battery-electric models badged as Jeep, Ram, Dodge and Fiat, but those EVs will still have some catching up to do.

Whether these models do well in the market or not, shareholders are making good use of them. Stellantis has spent more than 50% more on dividends and buybacks in 2023 and plans to double the number of buybacks in 2024.

One automaker that hasn’t bothered to shower shareholders with cash is Tesla. The company has never paid a dividend and is telling investors that it doesn’t expect to pay a dividend in the near future.

While Elon Musk flirted with the idea of ​​a buyback in 2022, when shareholder unrest over his acquisition of Twitter was at its height, Tesla’s board did not pull the trigger on the $5 billion to $10 billion buyback that the company said CEO was possible. (For a thoughtful consideration of the pros and cons of Tesla, see Liam Denning’s latest Bloomberg Opinion column.)

GM, Ford and Stellantis have performed well in recent months as an industry-wide slowdown in EV growth began. Shares of GM have risen 35% since the company announced its buyback and dividend plan in late November. Ford is up 21% in that period, while Stellantis is trading at an all-time high.

But while Tesla’s warning of “significantly lower” growth has taken some of the wind out of its sails, it’s still a $638 billion company that Detroit can’t take for granted. Don’t take my word for it, just ask Ford CEO Jim Farley.

“The ultimate competition,” Farley said on Ford’s earnings call this month, “will be affordable Tesla and the Chinese.”

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