GM Versus Ford: A Political Question?

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While there is little question that the government bailout of General Motors (NYSE: GM) and Chrysler saved not only each respective company, but thousands of jobs as well, the role of the federal government has become a significant issue in national politics. As we march ever closer to Election Day, the importance of Ohio as a swing state is apparent, particularly if you remember that automakers are amongst the largest employers there. On the other hand, Ford (NYSE: F), thanks largely to the careful stewardship of CEO Alan Mullaly, was able to weather the storm without government assistance. As the battle lines are drawn, choosing between Ford and GM has become as much a political question as an investment decision.

The Town Hall Debate

As expected, the subject of the bailout of the automotive industry made several appearances in Tuesday night’s debate. President Obama repeatedly pointed to his role in saving the two car manufacturers, suggesting that Governor Romney’s position was that the companies should have been allowed to fail. This, of course, drew immediate protest from the Governor who clarified his position as favoring a regular bankruptcy workout for the two companies, not their total demise. Neither candidate mentioned that Ford has prospered without any assistance from Uncle Sam. As things currently stand, the U.S. Government – meaning you and me, the taxpayer – are out about $1 billion on Chrysler and about $27 billion on Government, I mean General, Motors.

To be fair, both GM and Chrysler are now selling more cars and making money. Additionally, while the “one million jobs saved” estimate may be padded, there is little question that the bailout saved countless jobs at a time that the economy was seriously struggling. The real question, however, as this in an investment forum, is how the relative positions of the companies and candidates will impact these stocks moving forward.

The Way Forward

Politically, the bulk damage or the good has been done and is unlikely to change regardless of which candidate is elected relative to arrangements that are currently in place. The one remaining question is how the government will manage the shares of GM it currently owns. President Obama is on record as neither wanting to dump the shares at a considerable loss – they would need to roughly double for the government to be made whole – nor does he wish to be a long-term shareholder. Governor Romney would face the same challenge if he is elected; while he may have less sympathy for the company, he is an experienced investor. In either event, the case is not great for GM.

Outside the realm of politics, one of the most-cited drags on Ford shares thus far this year has been the company’s lack of a cohesive succession plan. Ford has enjoyed significant improvements in sales and market share, but the stock has struggled. While Mr. Mullaly has expressed no intention to retire in the near-term, his exit is expected late next year.

While no formal statement has been made, and the company continues to contend that the entire upper management team has been running the show somewhat by committee, Mark Fields seems to be emerging as the heir apparent. This is seen by many as a big positive for shareholders. What is certain is that as a concrete plan is formulated, one of the significant impediments to the stock’s performance should be lifted. This should clear the way for shares to go higher on Ford’s very solid operating results.

Overall, the political and financial questions are answered with Ford being the superior company at current levels. As such, those wishing to make an allocation to U.S. autos should look to Ford. While GM is making definite headway, as long as the government is so heavily involved, the stock leaves too many questions unanswered.

Interested in Additional Analysis?

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Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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