General Motors spent $21 billion on stock buybacks over the last 12 years. Instead, assembly line workers should be given more money.
That’s the logic of the United Auto Workers (UAW), which is waging an intensifying strike against GM, Ford and Jeep parent company Stellantis. To date, nearly 13,000 UAW members have quit their jobs. The union has threatened weekly more strikes and increased pressures on all three Detroit automakers.
The inevitable PR war breaks out as both sides engage. In the September 20 Detroit Free Press, GM President Mark Reuss said that GM had already made a “record offer” to striking workers, while arguing that GM had reinvested the vast majority of its profits in new facilities over the past 10 years invested. The next day, UAW Vice President Mike Booth dismissed those claims, saying GM had “showered Wall Street with the results of our work,” including stock buybacks. A central point of the UAW’s demands is that the Detroit Three have made profits and must share more of their profits with the grassroots.
It’s true that the Detroit Three have enjoyed a nice profit margin since emerging from the chaos of the Great Recession, when GM and Stellantis predecessor Chrysler filed for bankruptcy and Ford nearly filed for bankruptcy. The Detroit Three have collectively generated $99 billion in net income over the past five years, according to data from S&P Capital IQ.
But any profitability, no matter how high, is meaningless if you don’t compare it with that of your competitors. And compared to other major automakers and upstarts like Tesla, the Detroit Three don’t look nearly as rich.
The chart below shows Detroit Three’s profitability compared to the largest automakers in Japan and Europe – Toyota and Volkswagen – as well as Tesla, which only makes electric vehicles. GM and Ford trailed the other four in overall profits last year, although Stellantis did better. In terms of profit margin, Tesla beats them all with a margin of 15.4% in 2022, compared to 9.4% for Stellantis, 6.3% for GM and -1.3% for Ford, which has a small loss in 2022 recorded.
The story goes on
Here is the average profit margin for 11 major automakers over the past 10 years. Toyota’s average profit margin of 7.3% is about as good as it gets for a global automaker that operates across all segments. The Detroit Three are significantly lower.
Tesla’s average margin is negative because the company only started generating profits in 2020. However, the margins are now in the double-digit range, which other car manufacturers can only dream of.
What are the future prospects of each company? Past profitability doesn’t tell you much about it, but the share price is intended to reflect the market’s best estimate of future profitability. By this measure, GM and Ford have performed poorly, with GM down 15% and Ford down 29% over the past 10 years. The broader market rose 141% over the same period.
Stellantis has performed better, with shares up 283% since 2013. But that could reflect a recovery from the dark days when Fiat-Chrysler emerged from the Chrysler bankruptcy in 2009 as a strange American-European conglomerate and eventually morphed into a company with brands as diverse as Jeep, Ram , Fiat, Citroën, Peugeot, Vauxhall and Maserati.
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The Detroit Three have done well in recent years by eliminating many small, barely profitable vehicles from their U.S. offerings and instead relying heavily on large trucks and SUVs with high profit margins. Consumers have been spending with abandon, helped by several years of low interest rates and then trillions of dollars in COVID stimulus packages in 2020 and 2021 designed to keep the U.S. economy afloat.
Striking United Auto Workers union members demonstrate in front of the Ford Michigan Assembly Plant in Wayne, Michigan on September 15, 2023. (Rebecca Cook/Portal)
But investors are not optimistic about the future of the three automakers as the market shifts from the gasoline-powered models that have dominated for a century to electric models that require completely different technology and huge upfront investments. Ford says it will lose billions of dollars on electric vehicles this year. General Motors has struggled with technology problems and delayed electric vehicle launches. Stellantis said electric vehicle sales, particularly in Europe, have contributed to profitability, but deep cost cuts are still needed to remain profitable.
Tesla is in a different category because there are no gas-powered vehicles to move away from. But Tesla burned through cash and lost billions before posting its first annual profit in 2020. Tesla stock has risen to stratospheric highs as investors believe the hassle of building a robust electric vehicle infrastructure is largely a thing of the past and that Tesla will eventually displace many legacy automakers. In contrast, much of the pain for the Detroit Three still lies in the future.
The Detroit Three are the only fully unionized automakers in the United States and already have higher labor costs than Tesla and all foreign brands that operate U.S. factories. The UAW is now demanding wage increases that would widen the cost gap even further.
On paper, the Detroit Three may be able to afford to pay workers more and shareholders less. But no one is asking their competitors to do that, and some of those competitors are already enjoying advantages. Detroit automakers are no longer the titans they once were, nor are they the titans the UAW seems to think they are.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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