By Roger Nachman
General Motors (GM) opened for trading today, and is currently trading above the offering price, around $35 per share.
GM has been much talked about because it received an enormous amount of taxpayer aid - $50 billion worth. Ford (F), on the other hand, didn't receive a single penny directly from the taxpayer, although it did benefit from Chrysler and GM being bailed out. Ford's stock rose from around $1 in December 2008 during the brink of the financial crisis, to around $16 today, as consumers thanked Ford for not taking any government money.
Despite the massive run up, I still believe Ford is a better buy at this moment in time, as the company is making cars that everyone wants to buy. Allan Mulally has proven over the time that he's been at Ford that he can run a car company, which is different than any other business. The company is slashing its debt load, and is profitable at a much earlier time, than even the most optimistic estimates from management.
One thing that can not be discounted is the consumer loyalty due to not taking any direct bailout money from the government. The U.S. taxpayer was disgusted by GM and Chrysler taking money, and has since turned Ford into the number 2 seller of cars in the U.S. It continues to gain market share every month, and it actually listens to its customer. It brought back the Taurus after getting rid of it, and the Ford Taurus is now one of, if not the, best selling car in America.
GM is a solid investment, and is much better than the bears are making it out to be, but it still has a ways to go in comparing to Ford. The company still has big pension costs, although not as big as before filing for Chapter 11. Granted, Ford does as well, but with a huge run up in shares, this alleviates some of Ford's problems, as the company puts shares into the pension. GM moving into electric cars is a positive for the company, and I have no doubt that the Chevy Volt will outsell expectations.
The company receives a large portion of its profits from the BRIC countries (Brazil, Russia, India, China), but lost a lot of market share domestically, thanks in large part to its bankruptcy. The company's senior management is new to the car business, but are proven elsewhere.
The question remains is how long will the government motors stigma last? Stigmas just don't go away because a company went public. It has to work for that.
Ultimately, I believe that GM will prove to be a good investment, but not better than Ford.
Disclosure: No position