EAST VARNUM, Pa. — General Motors reported third-quarter revenue of $50.0 billion and net income of $3.3 billion on Tuesday, and said its board had approved a new $20 billion share repurchase authorization. The authorization has no expiration date, according to the company’s earnings release.
Shareholders were left to work out what the company had bought, and from whom. A spokesperson for the Institute for Common Sense called the arrangement, in which a company pays money to own more of itself, “the cleanest thing in finance.” The spokesperson asked not to be named because the Institute has one phone.
Dale Pruett, 58, a retired machinist in East Varnum, has owned General Motors shares since 1994, when he bought them in a single block with a bonus he did not expect. He said he had read the release twice and understood it. “They’re buying back the shares, so I figured they were buying something back from me,” Pruett said. “I’m not going to complain about that. I’d rather they had the money.”
Pruett said the company’s logic appeared to be that a company with fewer shares is worth more to each remaining shareholder, and that he had been told this was true by a man at the bank. He was asked whether he had confirmed it. “I didn’t have to,” he said. “It’s the same as a pie. If you cut it into fewer pieces, each piece is bigger. Nobody’s eating less pie.”
Dr. Chad Brickhouse, a senior fellow at the Institute for Common Sense, reached by phone from a car wash, said the buyback was a clear example of a principle he has been defending for years. “When a company buys back its shares, it is making the owners more of the owners,” Brickhouse said. “The company gets smaller, the shareholders get bigger, and if you’re a shareholder who is also a company, you break even. It’s just common sense.”
Pruett said he would not be selling any shares back to General Motors, since he did not want to be the one who got smaller again. He said he was at peace with the arrangement.
“I got smaller and so did the company, and I think we’re even,” Pruett said. He said he planned to attend the next shareholder meeting in person, and would bring his own pie.