Can Ford's Impressive Quarter Trigger Interest in GM IPO?

| About: Ford Motor (F)

As Ford Motor (NYSE:F) posted a higher than expected quarterly profit while moving towards an investment-grade credit rating by cutting out its debt and borrowing costs, market analysts and automobile experts are now waiting to see if the positive quarter results of Ford Motor Corporation could actually boost interest in the automobile sector especially with the upcoming initial public offering of General Motors in the pipeline.

Even as Ford's impressive quarter underlines the company’s strong fundamentals, its also offering a case that the automobile sector could very well be back on track as far as domestic sales in the United States is concerned. A Growing US domestic sales could auger well for GM as the company has already announced that it will stick to its pledge to keep certain levels of vehicle production in the United States until it has fully repaid the US taxpayer.

Ford Cutting Debt: Ford Motor Corporation meanwhile expects to be solidly profitable this year, as the company repaid $2 billion of debt in the third quarter and analysts expect the company to pay off a debt to a union retiree healthcare trust fund later this week. The company has also launched an offer to encourage holders of two issues of its convertible notes to exchange them for shares, in an effort to further reduce its debt. According to the company launched offers, holders of its convertible 4.25 percent notes due in 2016 and 2036 would receive cash premiums to convert the notes to Ford common stock while the offerings would not change the share count used to calculate diluted earnings per share.

Ford Q3: Third-quarter net profit rose to $1.7 billion, or 43 cents per share, from $997 million, or 29 cents per share, a year earlier. Excluding the Volvo unit, revenue rose $1.7 billion to $29 billion. Ford's automotive business reported a $1.3 billion operating profit for the quarter.

Can Positive Ford Trigger GM?: While Ford boasts an impressive line-up of new and revamped vehicles to keep its momentum going and is powering ahead on performance GM has yet to match, Wiping out tens of billions of dollars in debt in bankruptcy has helped GM. But even though GM has recovered well, and has the benefit of a larger emerging markets business and a chunky stake in parts maker Delphi (DPH) to unload, it still has a long way to go but the surge in Ford's quarter results could very well act as a trigger for GM. One of the biggest problems for the “Old GM” was debt and the Company got rid of that problem with its bankruptcy problems, but earlier analysts felt that GM now had to survive in a relatively stagnant industry. With Ford's positive Q3, the spark might come back to the sector, which can be good news for GM.

GM IPO: The Detroit-based GM is now relatively well financed with $50 billion of cash from the US government but experts feel that it hasn't yet shown sustained profitability or that it can compete with Toyota (NYSE:TM), Honda (NYSE:HMC), Hyundai (OTC:HYMLF) and other foreign automakers. Unlike most new listings, GM's won't necessarily mean a windfall in capital. Much of the new stock will be sold from the federal government's $43.3 billion stake in the company, and depending on how much of a hit the release is with investors, GM developers could receive only a small boost to their budgets in its aftermath.

Investment professionals are also not too favorably inclined to the risk inherent in companies that reorganize after a bankruptcy filing, which wipes out equity investors and often reduces debt obligations to pennies on the dollar. GM's credibility is further weakened because of widespread worry that the new company is just a better-financed version of the old one, with many of the same bad habits and cultural weaknesses that drove it to Chapter 11.

General Motors has meanwhile announced that it will stick to its pledge to keep certain levels of vehicle production in the United States until it has fully repaid the US taxpayer. The company is also pledging to make at least 90% as many vehicles in the United States as planned, provided it is commercially reasonable after repayment condition was added to GM's registration statement for the IPO.

Disclosure: No positions