Warren Buffett Says General Motors Is 'A Huge Annuity And Health Insurance Company With A Major Auto Company Attached'

In a 2006 interview with Charlie Rose, Warren Buffett, the Oracle of Omaha, shared some fascinating thoughts about General Motors (GM). This was three years before the company got into trouble and had to declare bankruptcy. 

During the interview, Rose mentioned Buffett had over $40 billion in cash, suggesting he could easily buy some big companies. However, Buffett explained that he hadn't seen any deals in the past year that excited him. “There's not one I'm envious of,” he said.

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When Rose mentioned General Motors, Buffett had a lot to say. At that time, GM was valued at around $15 billion, a far cry from its past as one of the world's most powerful companies. Despite its large market share – selling 25% of all vehicles in the U.S. and one-seventh of all vehicles globally – Buffett was hesitant.

He explained that GM's financial troubles stemmed from heavy obligations, especially its United Auto Workers (UAW) contracts. These deals, made when GM was on top, became burdensome as the company's dominance faded. 

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Buffett said: “The big problem was that they entered into contracts with the UAW, and they were based on the economics of market dominance. And they don’t have market dominance anymore, but they still got the contracts. And I don’t like the UAW. It was a freewill negotiation, but what they signed up for, and I think they’re paying like two and a half people who don’t work for every person who works in terms of retirement and health care.”

Buffett said, “General Motors is a huge annuity and health insurance company with a major auto company attached.” Enormous retirement and health care costs weighed down its car business. Because of these heavy financial obligations, it was hard for Buffett to see GM as a clear investment opportunity, even though he acknowledged the company was doing its best to manage the situation.

When Rose asked why Buffett wouldn't buy GM despite having the money, Buffett explained that GM's obligations made it hard to judge its true value. “I don't know whether you can exist with the kind of obligations they've got,” he said, pointing out that competitors like Toyota didn't have the same burdens.

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Buffett also discussed how investing had changed over the years. He recalled the 1970s when it was easier to find good investments. "When I bought the Washington Post stock in 1973/1974, hundreds of companies made my test,” he recalled. By 2006, though, finding suitable investments had become harder.

Responding to Rose’s question about being so big that he has to make a big play, Buffett exclaimed, “That’s my problem. I thought it was a problem when we were much smaller, but it wasn’t. But it’s a bigger problem now. It’ll be an even bigger problem in five years if I’m lucky.”

How GM is Doing Now

As of 2024, GM is performing robustly. Its market cap or net worth is around $56 billion. In the first quarter of 2024, GM reported revenue of $43 billion, a 7.6% increase from the previous year, and a net income of $3 billion. The company’s EBIT-adjusted (earnings before interest and taxes) stood at $3.9 billion. 

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