Ford and GM are Different but Going in the Same Direction
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If we are ever looking for an American company to invest in that continues to improve and do well, Ford (NYSE: F) is well worth the consideration. It is not a secret that the stock slid along with most of the market in the recent turn down in the spring. And because of certain conditions that include an Asian slump and the very present European debt, Ford stock may not be in the market to improve soon. But long term investors look for companies that are innovative and poised to increase profitability.
Take a look at Ford as an example.
If we look at some of Fords key statistics, we can see that it surpasses its industry average as well as the S&P 500.
P/E Ratio Ford: 2.20 Industry: 16.8 S&P 500: 19.4
Price to Cash Flow Ford: 1.90 Industry: 5.20 S&P 500: 12.2
Leverage Ratio Ford: 11.0 Industry: 4.20 S&P 500: 7.80
Return on Capital Ford: 17.1 Industry: 5.9 S&P 500: 11.6
There are reasons that Ford is doing so well. One example is its pursuit at saving energy costs. Recently, it announced that it successfully reduced the amount of energy it took to produce a vehicle in its plants by 22% and has plans to reduce it another 25% by 2016. That is a lot of energy and cost saved. Just to put it into perspective — it is a savings of 789 kwh while the average house in a state like Illinois may use between (562-778) per month. As an example, at the Assembly Plant in Wayne, Mich., a new "three-wet" paint application that reduces electricity use along with CO2 and Volatile Organic Compound (VOC) emissions is being used while a new 500-kilowatt solar panel system has been installed to generate renewable energy for production of Ford vehicles like the Focus and Focus Electric.
It is good to see how a company like Ford can continue to be frugal with its productivity but we must also take into consideration other companies that compete with Ford.
General Motors (NYSE: GM) recently announced the shut down of a factory in Germany because of the glut in the auto market in Western Europe. With the sovereign debt issue, demand for cars continues to soften and overcapacity is a huge problem right now with the number of cars expected to double to 4 million. At the same time, political pressure on the companies not to cut jobs has also played a role in this. It is taking GM 5 years to close this plant and it is its most marginal plant. And this division of the company has lost money for 12 straight years.
And GM’s profits are just not there. In the IPO most investors bought the stock for around $33 in 2012 but it has since slide 24%. You know a company is struggling when it made $7.6 billion in 2011 and still cannot deliver to shareholders. When are the profits going to turn into increased share prices? This is what shareholders want to know.
GM is also going into critical new labor talks and the CEO Dan Akerson lumped the burden of cutting hourly labor costs stating that Canada is the most expensive place to build a car in the world. It is a hard thing to work through when the Canadian dollar is at record low levels to the U.S. dollar driving up costs up north.
So, as sales in Europe and Asia continue to be a challenge—at least for now, the automakers like Ford and General Motors will continue to do what they have to do in order to improve their bottom line. Both companies look different in terms of the challenges they are facing, but the outcome tends to be the same. The automakers are slumping right now and it does not look like a turn around is coming soon.
johnmylant 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.