Billionaire Warren Buffett backed General Motors CEO Mary Barra on Monday, and said the Detroit automaker shouldn’t make moves to boost the short-term stock price.
In a CNBC interview, Buffett called Barra “exactly the right person for the job.” And he said it doesn’t bother him that GM isn’t immediately buying back stock. A group of investors wants former Obama auto adviser Harry Wilson to join the GM board and see the automaker return cash to shareholders
“The auto business — you can go through a lot of cash very fast,” Buffett said. “The idea of doing something now that’s get a little pop in the stock should not be on her agenda or the shareholders’ agenda. The main thing to do is build the strengths of General Motors.... It’s not easy running General Motors.”
Buffett’s Berkshire Hathaway conglomerate held a 2.6 percent stake in GM as of Dec. 31, with 41 million shares worth about $1.5 billion. It added 1 million shares in the last three months of 2014, according to a filing last month. The firm initially purchased 10 million shares in 2012, when the stock was trading in the low $20-per-share price.
Buffett also opposed putting Wilson on the board. Wilson has a contract saying he will get paid if the stock price rises over the next two years.
Wilson responded on CNBC that he wants to ensure the long-term success of the company and said he would put any money he made into stock in GM that he would agree to hold for the long-term. He reiterated that he also backs Barra.
Wilson wants the automaker to buy back $8 billion in stock by mid-2016 to boost the value of remaining shares. The group of hedge funds backing Wilson — Taconic Parties, Appaloosa Parties, HG Vora Parties and Hayman Capital — own about 31.2 million shares, or 1.9 percent, of GM stock.
The 84-year-old Buffett told investors that his successor will need to be mindful of the near-collapse of GM in 2008, which is alive thanks to nearly $60 billion in U.S. and Canadian bailouts in 2008 and 2009.
In his annual letter to shareholders released Saturday, he wrote: “My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency. When these corporate cancers metastasize, even the strongest of companies can falter.
“In their glory days,” he wrote, “General Motors, IBM, Sears Roebuck and U.S. Steel sat atop huge industries. Their strengths seemed unassailable. But the destructive behavior I deplored above eventually led each of them to fall to depths that their CEOs and directors had not long before thought impossible. Their one-time financial strength and their historical earning power proved no defense.”
In October, Berkshire announced it will buy Van Tuyl Automotive, a group of 78 automobile dealerships. “Our purchase was recently completed, and we are now ‘car guys,’” Buffett said. He said the company could buy additional dealerships.
Van Tuyl is now the fifth-largest automotive group in the country, with per-dealership sales figures that are “outstanding,” Buffett said. “If we do this — and if we can buy dealerships at sensible prices – we will build a business that before long will be multiples the size of Van Tuyl’s $9 billion of sales.”
Berkshire owns many major companies. It also holds major stakes in publicly traded American Express, Coca-Cola, IBM and Wells Fargo. We purchased additional shares of IBM.
He noted that investors can’t be biased toward the status quo. “We are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry,” he wrote.