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Is GM Really Worth As Much As Ford?

Wed, 11/03/2010 - 4:44am
Sharon Silke Carty, AP Auto Writer

DETROIT (AP) — If investors pay what General Motors hopes to get for its stock in a planned IPO, they'll have to buy the logic that the company's stock-market value should be similar to its closest competitor, Ford Motor Co. But Ford is making far more money these days and its U.S. market share is rising while GM's is falling and its new management team has little auto industry experience.

Ford's market value — calculated by multiplying its current share price by the total number of shares outstanding — is almost $50 billion. GM's total would be close to that if it is successful in selling a portion of its shares in an initial public offering later this month somewhere between $26 and $29 a share. That price range was confirmed Monday by three people briefed on the sale who asked not to be named because a formal announcement has not yet been made.

But is GM really worth as much as Ford right now? Ford has been working on a rebuilding plan for five years. It earned $1.7 billion in the third quarter, its sixth consecutive quarterly profit. It also managed through the financial downturn without taking taxpayer money, a big plus in the minds of American car buyers who increasingly are choosing its new cars and trucks.

General Motors Co. is still in the early stages of its restructuring, having emerged from bankruptcy protection just 16 months ago. The company has had four CEOs in less than two years, and still must find a way to pay back more than $50 billion in taxpayer money it took to help survive the economic downturn. It has only posted profits in the last two quarters, totaling $2.2 billion.

But the key to being a successful investor is guessing how a public company's stock will perform in the future. Share prices are "like a photograph; they're a picture in a moment in time," says Linda Killian, founder of IPO research firm Renaissance Capital. "Investors need to look at things differently."

Here are a few competitive points investors may want to consider when comparing the two automakers:

Share Price: Joe Phillipi, president of AutoTrends Consulting LLC in Short Hills, New Jersey, says he's counting on GM's investment bankers to price its shares a bit below what they hoped to get so average investors can quickly see some share price growth. He says he'd like to see them start trading closer to $26 a share than $29.

David Whiston, an auto equity analyst with Morningstar Inc., considers both GM and Ford to be attractive investments because of their potential for sales and profit growth when the global economy hits full stride. "I don't think it's a question of one or the other. I think you can do quite well on both," he says. "There would be more upside to the GM stock than to Ford's, but there's significant upside to both."

Advantage: GM

Debt: GM emerged from bankruptcy with very little debt for an automaker its size. The company has just $5.4 billion in debt, and it doesn't have any major repayment deadlines until 2015. "The fact that they have little debt is critical," says Shelly Lombard, an analyst with bond research firm Gimme Credit. Whatever money GM makes can be funneled back into car and truck development, marketing, or rapidly growing markets such as China, she says.

Ford, on the other hand, has about $21 billion in debt. In 2006, CEO Alan Mulally mortgaged the entire company - everything from the plants and buildings to the trademark on the Ford blue oval to help finance its restructuring. That money helped Ford avoid taking a government bailout, which many American taxpayers seem to appreciate. But eventually the automaker will have to pay that money back, using cash that would otherwise be used for product development

Advantage: GM

Global presence: In China, the world's largest car market, GM is the clear winner. It's sold 1.7 million vehicles there so far this year, totaling 12.9 percent of the Chinese market. Ford, meanwhile, has sold just 419,000 cars there, making up 3.1 percent of the market.

GM's Buick brand reigns supreme in China. GM sold 447,000 Buicks in that nation last year, four times its U.S. volume. The automaker is also making inroads in India, where an emerging middle class has begun developing a taste for imported cars.

GM lost the title of world's largest automaker two years ago, when Toyota outsold it. But it still fares better than Ford, which lost the fourth-place seat in 2009 to Korean automaker Hyundai-Kia.

Ford is doing better than GM in Europe, but that market is considered mature and established, and unlikely to provide any big gains in sales in the coming years.

"Both have strong placements in North America, South America, and Europe," says Michael Robinet, director of global production forecasting for IHS Automotive. "But GM has had a much more ingrained, longer-term strategy to address Asia."

Advantage: GM

Brand image: Both automakers are offering stronger products than ever before, but their different paths through the downturn carved images in consumer minds. Many Americans resent that GM took taxpayer money, and see it as a weak competitor. That's despite the fact that outside experts like Consumer Reports say the company is making strides in reliability and overall quality.

George Peterson, president of auto consulting firm AutoPacific, says he's surprised at how often people tell him that they feel good about their Fords because the company didn't take bailout money. "Ford is really on a roll, and I don't see anywhere where they could stumble," he says. "They are in the position to grow market share at the expense of General Motors in the U.S."

Advantage: Ford

Leadership: Ford CEO Alan Mulally is the automotive industry darling. After coming from Boeing in 2006, he took the company's existing restructuring plan and forced all the top executives to get on board. There is less infighting at the top now, and a focus on making the Ford brand as good as it can be.

GM's leadership is still unproven. CEO Dan Akerson, who comes from the telecom industry, has been on board for just a few months, and he's the fourth CEO leading GM in less than two years.

"You could argue, too, that Ford's got a more proven, respected management right now, where GM's management is more of a wild card," says Morningstar's Whiston. "But I think GM's management is better than people are giving them credit for. They're just new."

Advantage: Ford

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Auto Writer Tom Krisher in Detroit contributed to this report.

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