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A Peek Into GM Share Buyback Program

The Cadillac ATS. Source: Flickr Image.

General Motors has been buying back its shares starting in 2015 and has only suspended the stock buyback program as recent as 2Q 2020. Over the past 5 years between 2015 and 2020, the company has bought back a considerable number of shares and the buyback program has greatly reduced the company’s share count.

This article explores General Motors’ share buyback history and how the buyback program had affected the company’s shares outstanding. Other than the historical shares outstanding, we will also look at the average stock prices at which GM repurchased its stocks.

By analyzing the stock prices at the time the stocks were repurchased, we can find out whether the stock buyback programs were being utilized efficiently and whether the stocks were repurchased at a reasonable price.

Before looking at the historical buyback program, let’s take a look at GM’s outstanding shares which is shown in the next chart.

GM’s Shares Outstanding

GM common stocks outstanding

GM common stocks outstanding

The chart above shows General Motors’ outstanding shares between 2015 and 2020 on a quarterly basis.

As seen from the chart, GM’s share count has greatly reduced over the past 5 years. The number of shares outstanding has dropped from roughly 1.6 billion in 2015 to only 1.43 billion as of 1Q 2020. For the past 5 years, GM’s stock outstanding has declined by as many as 170 million. The decline in share count represents as much as 10% of the total shares outstanding in 2015. That’s a significant achievement for GM.

For your information, GM has spent roughly $10.6 billion for the past 5 years on the stocks buyback. However, the company has decided to suspend the share buyback program in 1Q 2020 when the COVID-19 pandemic started to strike the world. The damage has been severe especially for the automobile industry. As such, GM has decided to temporarily halt the program to improve the company’s liquidity.

While GM has halted the buyback program, there is still an unused amount of $3.3 billion left under the common stock buyback program as of March 31, 2020.

GM share buyback Q1 2020

GM share buyback Q1 2020

As shown in the snapshot above, approximately $3.3 billion was still available as of 1Q 2020 for the share buyback program despite being suspended.

Therefore, if GM had used up all of the available credits under the buyback program, the company would have spent a total amount of $14 billion to repurchase its common shares outstanding.

As of 1Q 2020, GM’s shares outstanding were roughly 1.43 billion, representing a year over year increase of only 1%.

Also, the plot in the chart shows that the rate at which the shares outstanding was reduced was much greater between 2015 and 2017 compared to between 2018 and 2020. In fact, GM’s share outstanding had slightly increased from 2018 to 2020 which was driven mainly by stock-based compensation. We will come to this topic below.

To recap, the reason for the trend mentioned above was largely driven by a much aggressive shares buyback effort between 2015 and 2017 as opposed to a reduced rate of shares repurchase between 2018 and 2020.

GM’s Stock Buyback History

GM stock buyback history

GM stock buyback history

The chart above shows GM’s stock buyback history over the past 5 years between 2015 and 2020.

As the chart shows, the majority of the share buyback occurred between 2015 and 2017, with 2017 having the most buyback at roughly 120 million shares being repurchased.

Throughout 2015, GM spent roughly $3.5 billion to buy back approximately 102 million shares compared to only $2.5 billion spent throughout 2016 to buy back roughly 77 million shares.

GM spent the most on shares buyback in 2017 at $4.5 billion to repurchase about 120 million common stocks.

Cumulatively, GM had spent a total amount of $10.5 billion from 2015 to 2017 to buy back over 300 million common stocks.

However, from 2018 to 2020, we can see from the chart that the buyback effort reduced considerably and GM bought back only 5.5 million shares valued at about $200 million.

GM announced to suspend the share buyback program in 1Q 2020 after purchasing about 3 million common stocks in the same quarter at $90 million.

According to GM, the share buyback suspension will only resume when the company no longer has outstanding borrowings under the revolving credit facilities. The following is an excerpt extracted from the 1Q 2020 quarterly filings regarding the share buyback policy:

  • As part of the extension of the three-year, $4.0 billion facility, we have agreed not to execute any share repurchases until we no longer have outstanding borrowings under the revolving credit facilities, except for the three-year, $3.0 billion facility. In addition, we are restricted from paying dividends on our common shares if outstanding borrowings under the revolving credit facilities exceed $5.0 billion, with the exception of the three-year, $3.0 billion facility.

Not only did GM suspend its share repurchase program, but the company also suspended its dividend payout starting in 2Q 2020 when the respective revolving credit facilities exceeded $5.0 billion under existing borrowings.

At What Price Did GM Buy Back Its Stocks?

GM share buyback Q4 2015

GM share buyback Q4 2015

GM share buyback Q4 2016

GM share buyback Q4 2016

GM share buyback Q4 2017

GM share buyback Q4 2017

The above snapshots show GM’s average price paid per share under the buyback programs from 2015 to 2017.

Based on all the average prices paid per share, GM paid the most in 2017 when the average price paid per share was above $40.

GM paid roughly $34 and $35 per share when it bought back its shares in 2015 and 2016, respectively.

Compare to GM’s stock price of $25 as of this article was published, GM paid a premium on the share price under its stock buyback program.

GM should be buying back shares now instead of suspending the buyback program when its stock price reached a historical low at only $14 in April and May 2020 during the peak of the COVID-19 pandemic.

The result shows that GM may have illy timed its buyback when the stock price was at a record high back in 2017.

To recap, GM spent the most on stock buyback in 2017 at roughly $4.5 billion when the company’s stock price was the highest historically in 2017 at more than $40.

GM’s Stock Based Compensation

Over the course of the 5 years, GM had repurchased slightly more than 300 million stocks. However, when we look at the chart of GM shares outstanding, the number of common stocks reduced was only slightly more than 170 million between 2015 and 2020.

Therefore, what had happened to the rest of the 120 million common stocks that GM had repurchased?

The answer lies in the stock-based compensation which GM has been doing over the past 5 years. The stock-based compensation was a form of stock incentives granted to employees for their services. Under the company stock incentive awards, the stocks granted can be in the form of RSUs, RSAs, PSUs, and stock options.

Under stock-based compensation, new stocks are issued and given to employees, and the issuance costs are treated as an expense in the company’s income statements. The new stocks issued will dilute the existing share count.

As such, GM has been adding more shares to its existing shares outstanding under the stock-based compensation program. At the same time, GM has also been reducing its common stocks outstanding by repurchasing them under its stock repurchase program.

Fortunately, the rate at which outstanding shares being reduced had been much greater than the rate of new stock being added. The net effect was that the outstanding shares were reduced at a much slower rate as seen in the 1st chart.

The following chart shows GM’s stock-based compensation expense from 2015 to 2019.

GM stock based compensation expense

GM stock based compensation expense

As shown in the chart above, GM’s stock-based compensation expense averaged around $500 million from 2015 to 2019 on an annual basis. The most recent one in 2019 was around $456 million.

The stock-based compensation expense for the last 5 years totaled around $2.4 billion. This amount represents as much as 23% of GM’s total stock buyback budget from 2015 to 2020. That was quite a huge amount considering that it took up nearly a quarter of the company’s buyback budget for the past 5 years.

Conclusion

In conclusion, GM has aggressively bought back its shares starting in 2015 and has spent $3.5 billion alone in 2015 to buy back slightly more than 100 million common stocks. The buyback effort continued aggressively until 2017 in which GM spent a staggering $4.5 billion to buy back 120 million common stocks in 2017 alone.

Between 2015 and 2017, GM has bought back approximately 300 million common stocks valued at $10.5 billion, causing the shares outstanding to plunge from 1.6 billion in 2015 to 1.4 billion by the end of 2017.

However, the share buyback slowed down considerably starting in 2018, and shares outstanding slowly crept up from 1.4 billion in early 2018 to 1.43 billion as of April 2020.

GM paid a premium on share buyback when the average price per share paid was more than $40 in 2017. GM spent well over $4.5 billion in 2017 alone to buy back share when the stock price was historically the highest in 2017.

GM’s stock-based compensation has caused the company’s share count to tick up since 2018 when the company slowed down considerably from 2018 to 2020 in the share buyback program.

References and Credits

1. Financial figures in all charts were obtained and referenced from the quarterly and annual filings available in GM SEC Filings.

2. Featured image was used under Creative Common License and obtained from raymondclarkeimages and Jason Mrachina.

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