This is The Morning Shift, our one-stop daily roundup of all the auto news that's actually important — all in one place every weekday morning. Or, you could spend all day waiting for other sites to parse it out to you one story at a time. Isn't your time more important?
1st Gear: There's Always A Stock Buyback Before A Storm We've already covered how hedge funds, led by a former Obama administration auto bailout advisor, managed to shake at least $5 billion out of GM in a stock buyback, but let's talk about what this means.
There's a fantastic opinion piece in the Harvard Business Review that focuses on what's happening here and I recommend everyone go read it, if only for the prescient Bob Lutz quote that these kinds of buybacks are “always a harbinger of the next downturn… in almost all cases, you regret it later.”
The short version of what happened is: Mary Barra is weak right now as she tries to deal with one crisis and force through change ahead of a UAW negotiation. GM, which was primarily bailed out by taxpayers and unions (who took hits to save the company), is an easy target for hedge funds who want a huge stock buyback so they can cash out. Harry Wilson threatened to join the GM board as an activist on behalf of hedge funds and demanded $8 billion. GM gave him $5 billion, and had previously offered about $5 billion through increased dividends announced earlier. (Ed note: the original version of this made it sound like the $5 billion in dividends was announced concurrently with the buyback).
Why is this bad? From the piece:
One of us (Bill Lazonick) has been extremely critical of the kind of buybacks — open-market stock repurchases — that GM has pledged to undertake. Their only purpose is to give manipulative boosts to GM’s stock price. The winners will be public shareholders, including the hedge funds, who stand ready to gain by selling their GM shares. If U.S. corporate history of the past three decades is a guide, the $5 billion in buybacks won’t be the last. The pump-and-dump hedge funds will come back to GM’s buyback well year after year until the cash flow once again runs dry.
GM did $20.4 billion worth of buybacks from 1986 through 2002. If it had saved that money and earned a modest 2.5% on it, the company would have had $35 billion on hand when the financial crisis and Great Recession hit and probably would not have had to file for bankruptcy protection.
Invest the money. Save the money. What's good for the hedge funds aren't good for America.
2nd Gear: Rating Agencies Are Probably Going To Ding GM For Doing This
Guess what? Our country's shady and shaky ratings agencies are dumb but they aren't that dumb. They know that in the event of a downturn GM is risking its fortress balance sheet and they're going to likely delay upgrading the company's credit rating according to Reuters:
GM is still three steps from an A rating, but officials with Standard & Poor's Ratings Services and Moody's Investor Service said this week that the next upgrade could be delayed by GM's decision Monday to launch a $5 billion share buyback and boost its dividend.
"The way we are assessing the company's trajectory in terms of any upside ratings is that as of now it appears unlikely in the next two years," S&P credit analyst Nishit Madlani told Reuters.
GM on Monday said it agreed to operate with $20 billion in cash reserves, returning any excess to stockholders. As of the end of 2014, it had stockpiled $25 billion in hopes of rebuilding its debt rating.
S&P reaffirmed its investment grade rating of BBB- and a stable outlook, but Madlani said "in case of a modest downturn that level of cushion is not something we are comfortable with."
Before Monday, S&P might have considered an upgrade in 2016, he said.
Yeah, great. So instead of potentially saving a lot of money to fund their auto loans they're now likely going to have to pay for a longer period of time.
GREAT JOB HARRY WILSON.
3rd Gear: Ok, So Not All Russian Carmakers Are Screwed
Yesterday we went pretty hard on Russia's auto market, which is cratering faster than Edward James Olmos's face. It's not all bad, though!
While sales for Chevrolet were down 74 percent in February and General Motors’ Opel saw a 86 percent nose-dive, Mercedes, Lexus and BMW have all seen a rise. Audi fell, but by less than the market as a whole.
Oksana Isaeva, sales manager for a jewelry firm, is in the market for her third Audi in a row. She’s feeling the financial pinch, but would rather buy a smaller Audi — a Q3 rather than a Q5 — than go for a lower-class brand of car.
“It’s happened because of the economic situation in the country. It’s a drop in the class of car, unfortunately,” she said.
Oh man, she has to drive a Q3 instead of a Q5. I feel so bad for you.
4th Gear: Will Autonomous Cars Cause Us To Use More Fuel?
There's an argument, and one I'm not entirely opposed to, that driverless cars will have a net negative impact on fuel consumption by causing us to use cars more frequently and thus be less efficient.
In most households, each adult commutes, runs errands and shuttles the kids separately, according to the U.S. National Household Travel Survey. A self-driving car would make more trips to finish the same tasks, the U-M researchers said. It might drop off one parent at work, return home to pick up the other, and then take the kids to school, return home, then start the return cycle.
What isn’t known yet is how many people who don’t currently drive, like kids and users of public transportation, will start sharing a self-driving car. Those new trips — and all the return trips in between — could mean more total driving.
Obviously, fewer people sharing cars also has a positive impact, and autonomous cars might be EVs, and autonomous cars could reduce congestion, and and and and...
5th Gear: Honda To Advertise... Recalls
Honda does not want to be GM and thus it will start advertising that there's a recall related to airbags in an effort to get people to come in and fix their cars.
The AP is reporting that Honda has only fixed about 15% of the total number of recalled cars. That's not good.
If you've got a Honda vehicle just triple check if your car needs to be recalled and get it fixed.
Reverse: It Begins...
On this day in 1921, Giovanni “Gianni” Agnelli, the glamorous, powerful Italian business tycoon who turned Fiat, his family’s car company, into an international conglomerate, is born in Turin, Italy. Agnelli was named for his grandfather, who founded Fabbrica Italiana Automobili Torino, later known as Fiat, in 1899.
Neutral: What Would You Do If You Were Mary Barra?
Tell the hedge funds to shove it or just boost the stock price? Also, you own a lot of stock.
Photo Credit: Getty Images
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