But after a decent first quarter in2013, GM just announced a $1.2 billion profit for the second quarter. The company holds over $44 billion dollars in cash and credit and is rolling out new and well accepted models every few weeks, it seems. The company enjoys a favorable UAW contract for the next few years, and is selling into a U.S. auto market with considerable pent up demand. Chevrolet is setting sales records, and a resurgent Cadillac has restored brand prestige. In fact, production restraints from cutbacks made during the bankruptcy period restrain current production and profits.
It is expected that the U.S. Government will complete its sell off of GM stock in 2014. In the middle of all of this, GM and its stockholders enjoy a gift provided by the Federal Government. The new GM was granted “loss carry forwards” from the old GM that could amount to $45 billion in tax savings in the coming years. That’s a lot of money that can be deployed in new technology and model development.
Ford also benefits from the same beneficial UAW contract it gained from UAW as a consequence of the overall U.S. auto industry reorganization. Ford Motor Credit contributes greatly to the parent company’s bottom line.
Ford, like GM, is challenged in Europe and is facing market share erosion at home. Ford has to compete with two U.S. competitors, Chrysler and GM, which shed debt through their bankruptcies, while having to pay all of its own obligations. The company continues to struggle with the Lincoln brand, having shed its Mercury division.
On balance, things look good overall going forward for both automakers, despite the obvious challenges. Europe won’t be in the economic doldrums forever. Despite declining market share in the U.S., the home market seems to be advancing toward the old standard of a 17 million SAAR. (Seasonally Averaged Annual Rate) As costs stay in line and sales continue to advance with the expanding SAAR, without huge incentives required to achieve them, profitability should stay strong for the both automakers for the foreseeable future. Some analysts see Ford as a $40.00 stock with GM at $60.00. Time will tell.