General Motors announced a $20 billion buyback. Why did its stock price fall?

General Motors (GM) announced a $20 billion share buyback program. This represents approximately 28.6% of GM’s total market capitalization, which stands at about $70 billion, as noted by Barron’s. The company’s board of directors expects the buyback to boost the automaker’s market value. However, instead, General Motors shares plummeted by 8% in premarket trading on October 20. Almost simultaneously with the buyback announcement, the company released its third-quarter earnings report. In it, the company slightly lowered its full-year earnings forecast. Barron’s attributes the sell-off that ensued to this very figure.

In the third quarter, which ended on September 30, the company’s earnings before interest and taxes (EBIT) totaled $4.1 billion, slightly exceeding the consensus estimate of $4.02 billion, according to Bloomberg. The automaker reported earnings per share of $3.7, which also exceeded analysts’ expectations of $3.56, and quarterly revenue of $50 billion. GM’s automotive business generated $5.9 billion in free cash flow—the source of funding for the buyback—a 40% increase year-over-year.

Stable revenue from high-margin SUVs and pickup trucks is offsetting the decline in the company’s overall sales in the U.S.—General Motors’ largest and most profitable market, according to Bloomberg. Affluent and loyal customers are rarely switching from GM’s largest and most expensive models to cheaper ones, even though surging fuel prices and rising interest rates are hurting sales of budget-friendly vehicles.

Against this backdrop, the company has slightly lowered its annual profit forecast. Thus, although this figure remained unchanged on average—at $15 billion—GM now expects adjusted earnings before interest and taxes (EBIT) for 2026 to be in the range of $14.5 billion to $15.5 billion, compared with the $14 billion to $16 billion range projected in July. “The buyback is good news, but the annual operating profit forecast has essentially remained unchanged,” noted Barron’s, describing the stock’s performance.

General Motors' new buyback program is set to run for several years. This is the first such program since the $6 billion program in January, Bloomberg notes, adding that the company has already spent $29.5 billion on share buybacks since 2023. The automaker’s market capitalization is approximately $70 billion.

However, General Motors’ board of directors believes the company’s stock is fundamentally undervalued. Mary Barra, the automaker’s CEO, made this statement in an interview with CNBC this month. Over the past year, GM’s stock has risen by more than 40%, but since the beginning of 2026, it has remained virtually unchanged (rising by nearly 2%) and is lagging behind the S&P 500 index, which has gained about 12% over the same period. The company’s P/E ratio (which shows the ratio of a stock’s market value to its annual earnings per share) is lower than that of its competitor Ford, which indicates Wall Street’s cautious stance toward GM, despite its cash flow and profits, the WSJ notes.

Overall, according to MarketWatch, analysts view GM’s outlook positively: 21 experts recommend buying the company’s stock, while six are cautious and advise holding it in their portfolios. There are no sell recommendations. The average target price—$106.14 per share—implies a 28% increase in the automaker’s stock price relative to the last closing price.

After writing off losses from failed bets on electric vehicles and autonomous vehicles, Barra focused on the company's core business and returning capital to shareholders through buybacks.

GM is banking on the fact that affluent Americans will continue to buy large pickup trucks and SUVs, even as sales of cheaper models decline. By the end of the year, the company will launch completely redesigned Chevrolet Silverado and GMC Sierra models, and it also plans to ramp up production of these vehicles and equip them more frequently with premium V-8 engines, according to Bloomberg.

This article was AI-translated and verified by a human editor