Automakers, It Won’t Hurt to Share That Buyback Bounty

Stock buybacks are the perfect target for the United Auto Workers. The freest of free cash flow, they may as well be a billboard saying: “So many dollars, we don’t know what to do with them!” In the minds of many, they also look like giveaways to the very wealthiest who own many of the stocks being bought, and carry a whiff of financial engineering shenanigans, juicing earnings to the benefit of bosses’ bonuses.

All of which offers a reason for the Big Three to consider meeting the UAW halfway on this one.

One of the UAW’s demands in its fraught negotiations with Ford Motor Co., General Motors Co. and Stellantis NV is that its members get a share of any stock buybacks, special dividends or increases in ordinary dividends. The figure talked about is $2 per worker for every $1 million of such distributions. Given billions in buybacks over the past decade or so, those $2 tithes could mount up.

For investors, however, what’s been paid over the past decade isn’t the issue. Rather, the question is how much this would cost going forward and how that compares with other demands being made by the union. Looking just at GM and Ford, their buybacks, special dividends and dividend increases over the past four quarters add up to about $6.3 billion. Using the $2 number for just over 100,000 UAW workers at the two companies implies a payment of about $640 million. That is roughly equivalent to a 4-5% increase in hourly pay and benefits, or around 3% of operating profit.1

Some investors are reportedly fine with diverting some of Detroit’s distributions to its workers, according to Bloomberg News. Altruism? Without wishing to be overly cynical, there may just be a good negotiating stance here for both sides.