Cut General Motors CEO Mary Barra some slack for caring not one iota about optics. Barra is a GM lifer, a company where personal enrichment of senior management has long superseded the betterment of employees and the communities where they live. Watch Michael Moore’s 1989 classic Roger & Me and you’ll get an education about Barra’s executive DNA.
Barra in 2021 was awarded $29 million in compensation, well above the average $18.5 million paid to America’s other overpaid CEOs. Barra’s ratio of total compensation to the median of all GM employees’ total compensation was 420-1. By comparison, the average S&P company’s CEO-to-worker pay ratio was 324-1.
If Barra’s pay doesn’t make your blood boil, maybe this will: GM also spent $413,368 last year for personal travel, security, company vehicle programs, executive physical and financial counseling for Barra. The financial counseling is what really sticks in my craw; the board awarded Barra an obscene amount of undeserved compensation and then covered the cost of helping her manage the loot.
The payments are sickening, but they illustrate Barra’s unadulterated greed, particularly when it comes to fleecing U.S. taxpayers. It’s fair game to hold Barra personally responsible for all GM’s initiatives and policies, as she must approve them and she benefits financially from them. GM can afford to pay Barra $29 million a year because the company functions as a giant corporate welfare scam.
No. 2 corporate moocher
According to Good Jobs First, an admirable organization that monitors corporate feeding from the public trough, GM firmly ranks second among America’s taxpayer moochers, bested only by Boeing. Since 2020, GJF lists GM as having received $8.2 billion in federal and state grants and allocated tax credits. Most of GM’s taxpayer largesse was showered on the company after 2008, when U.S. taxpayers bailed out the failed enterprise.
I’m uncertain whether GJF’s estimates include the most recent disclosure that after GM was bailed out, the company received $3.8 billion in Michigan tax credits as a bribe to keep jobs in the state. The “incentives,” as those kindlier than me would characterize them, were kept under wraps because that’s how GM prefers to roll when dealing with government entities.
Michigan is the least transparent state in the union, so legislators can cut all sorts of secret deals without any accountability. Unfortunately for GM, a Michigan judge ruled in June that the Michigan Economic Development Corporation must fully disclose the Michigan Economic Growth Authority taxpayer subsidies it awarded to GM.
Laughingly, GM argued that it wanted to keep its taxpayer subsidies confidential for competitive reasons, as if Ford and Stellantis, which owns the former Chrysler/Jeep brands, don’t know who’s the biggest pig in the automotive pen. Ford since 2020 has received $5.7 billion in taxpayer funds, while Stellantis has received $2.6 billion.
EV Tax Breaks
The accelerated conversion to electric vehicles has proven a taxpayer largesse godsend for GM, as well as Ford and Stellantis. Taxpayers are subsidizing the purchase of electric vehicles, which are mostly luxury products costing on average $66,000. The median U.S. household income in 2020 was $67,521, so it doesn’t take a University of Chicago economist to figure out that working class Americans are funding the luxury car purchases of America’s wealthy.
GM has already used up the tax credits available for its EV sales, but like a corporate Oliver Twist they’re pleading with Congress, “Please, sir, we want some more.”
The Biden administration has also earmarked $5 billion to build a national EV charging network, so U.S. taxpayers are on the hook for that as well.
Despite having received an embarrassment of taxpayer riches to convert to electric vehicles and stay in business, there is no limit to GM’s taxpayer funding greed. The Department of Energy disclosed this week it has given a “conditional commitment” to give GM and a joint venture partner a low-cost $2.5 billion government loan to build battery cell plants. GM and its partners must adhere to certain conditions, but when a Detroit Free Press reporter asked for specifics, the DOE declined to comment.
Another secretive taxpayer funded GM handout.
Tesla’s taxpayer funding
Admittedly, Tesla wouldn’t be around without taxpayer funding, but it was an upstart company pursuing the development of a product where GM once had the lead but didn’t want to invest funding to pursue. Providing billions in taxpayer funding to GM, which in 2021 recorded $127 billion in revenues, so the company can remain competitive is questionable use of taxpayer funds.
Moreover, the Wall Street Journal reported on Monday that Redwood Materials, a company launched by Tesla co-founder JB Straubel, is planning a $3.5 billion battery-materials plant in Nevada. The Journal story made no reference of Redwood receiving any government grants or subsidies for this venture. Redwood earlier received $411,599 in Nevada tax abatements over 10 years to build an electric vehicle battery recycling plant in exchange for the company committing to invest $5.1 million in capital equipment and generate $3.7 million in tax revenue over a decade.
Straubel, Tesla’s former chief technology officer, reportedly played an instrumental role in the development of the company’s Nevada Gigafactory.
Governors like Michigan’s Gretchen Whitmer like to deceive their constituents that giving companies billions in tax breaks inspires loyalty and results in job creation and tax revenues. That’s a myth, according to the Institute of Taxation and Economic Policy in a commentary about GM laying off thousands of workers in 2018 after President Trump’s tax breaks.
“For mainstream economists, GM’s latest announcement is confirmation of what they already knew: Successful corporations will always base their investment and job-creation decisions on market fundamentals and consumer demand, not on incremental tax giveaways,” the think tank said in its report.
Sometimes the commitments companies promise in exchange for tax breaks are forgiven. The Detroit News reported that before the pandemic, Whitmer’s administration nixed a stipulation in GM’s lucrative state tax credits agreement that required the automaker to maintain a minimum of 4,000 jobs at the Renaissance Center on Detroit’s riverfront. The story caused little public outrage.
GM’s headquarters is a ghost town, as employees can work from home, allowing them to escape the city’s 1.2% non-resident tax. (I’d welcome knowing whether Barra pays any Detroit city taxes.)
As for loyalty, GM last year earmarked $1 billion to build electric vehicles in Mexico, where several of its most lucrative trucks also are assembled.
The firing of VW’s Herbert Diess
What troubles me most about GM’s tax breaks is I’m doubtful the company will survive long term. That might seem alarmist and far-fetched, particularly since GM assured Wall Street today that it’s on track to earn $9.6 billion to $11.2 billion in net profit, despite missing analyst estimates for the second quarter.
One need only look at Volkswagen’s firing of CEO Herbert Diess last week. Diess, a former BMW executive, was an early proponent of electric vehicles and turned down a job offer from Tesla to join Volkswagen, the Wall Street Journal reported. The Journal said that upon Diess’ arrival at VW in 2015, he began laying the groundwork for the company’s electric-vehicle strategy, all part of a master plan to make VW’s brands, including Porsche, Audi, Seat, Škoda, Lamborghini and Bentley, develop a line of core electric models with a plan to shift fully to EVs this decade.
What tripped Diess up was his inability to develop reliable software, the foundation of modern electric vehicles and future self-driving systems.
Barra’s EV track record
GM’s experience with electric vehicles under Barra hardly inspires confidence. GM was forced to recall its electric Chevrolet Bolts because their batteries could possibly catch fire, a move costing the company $1 billion. GM has since reintroduced the Bolt EUV but was forced to cut the price by $6,000 because the vehicle wasn’t selling. Here’s a profile of the sort of customer attracted to the Bolt EUV.
Despite a nationwide shortage of new vehicles that drove up the average cost of a GM vehicle by $6,660 in the second quarter, the company’s pretax profit margin in North America, which is responsible for most of GM’s bottom line, fell to 8% in the second quarter from 10.4% a year earlier. Little wonder that GM’s battered stock fell another 3.42 percent today.
Money manager Cathie Wood, a longtime Tesla bull, said in January that GM and Ford “don’t have the DNA for this brave new world” of electric cars. While Wood subsequently took a small nibble of GM’s stock in recent weeks, there’s mounting evidence that Wood got it right the first time. Ford has been forced to recall its Mexican-made electric Mustang because of a critical software issue that can cause the vehicle to stall, and a promised fix last month has yet to materialize.
Meanwhile, there are rumors that Diess might join Tesla, which would spell disaster for GM and Ford. An experienced luxury car executive teaming up with the entrepreneur who made electric vehicles successful and profitable would ensure Tesla’s dominance of the EV market for many years to come.
Giving GM any more tax breaks is simply throwing more good money after bad.