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Here's why $GM finds backs a better way of allocating capital than investing in the future
General Motors had a rough 2023. The UAW strikes. California suspending its robotaxi operations in SF after numerous accidents and connectivity issues. Higher interest rates making it expensive to continue operating as a business. As demand for cars wanes, $GM is halting investment in retooling their factories for EV production.

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_Hummer EV on Call of Duty: Modern Warfare 2

With a market cap of $44 billion, spending $10 billion on buybacks would mean the Company is buying back nearly 25% of its business, making each share of GM more attractive. Sure, investments in retooling factories and improving robotaxis would help make the business successful in the long run however, shareholders would prefer guaranteed returns over volatile capital investments. Investing in factory retooling isn't wise when demand for electric vehicles is hard to decipher. investing more in Cruise isn't wise when everyone isn't sure when California will allow Cruise to reopen operations in SF and other cities. Treasuries are a great use of cash but when doing the math, the returns from buybacks are higher.

Let's assume:

  • $44 billion market cap
  • $10 billion buyback would represent nearly 25% of market cap
  • Reducing shares by 25% should lift price by around 33%
  • For GM that would equal a $14 increase from $30 to $44
  • On remaining 75% shares (1.05 billion) the rise equals $14.7 billion in market cap

So with GM's $44 billion valuation, a $10 billion buyback could boost market cap by around $15 billion. A near 50% return overall. Of course, we don't know how the market will perform during the buyback time period but assuming conditions remain constant, buybacks are a rational choice for use of capital.

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