Ford and GM Living on Borrowed Time

Ford (F) and GM  (GM) have enormous debt. When compared to other auto companies, it is clear that both of them have an extraordinarily difficult road ahead.  It is hard to imagine a way that either can dig their way out.  Neither has been profitable: last year Ford was -2 billion and GM was -38 billion.

Below is a table comparing Ford and GM to its competition (click to enlarge).

Ford has the worst position in terms of debt per share, revenue per share and revenue to debt.

Disclosure: Author holds a short position in F and has no position GM, TTM, DAI, FIAT, TM

Comments

[manohmanoh:]

You win the prize. Most pointless article on alpha ... and that, my friend, is SAYING something! Congratulations on reading the columns and rows from yahoo finance: balance sheet on companies. 1) your math stinks (check your table again) 2) using your favorite source, check "other liabilities" for GM vs F. Congratulations on your 15 minutes. It just ran out.

2008 Jul 14 03:24 AM

[User 225934:]

Just look at the short covering today(7-14-2008)with freddie and fannie.The shorts are getting there heads handed to them on a silver platter.The same will happen with the GM shorts.

2008 Jul 14 08:12 AM

[flexmarketman:]

Does your analysis correct for captive finance companies (e.g. GMAC?) These captive finance units may show massive debt, but it is collateralized against physical assets. The Big 3 have more mature captive finance units than the other manufacturers.

2008 Jul 14 08:40 AM

[manohmanoh:]

let's not confuse "analysis" with a table of numbers. "data" and "insight" are entirely different things.
4,12,567,12.76182
5,15,123,1.5329

So, draw your own conclusions ...

2008 Jul 14 09:17 AM

[glh2250:]

If it wasn't for analyst and car reviewers the American car companies wouldn't be quite as bad as it is for the American companies. It always seems that reviewers always favors the imports and bashes the American companies. The price of oil is driven by the analyst. If the analyst says that oil is going to be $200 a barrel, then the oil companies try to make that happen out of their own greed. Come on analyst, get a life and put some positive information out there instead of being so negative all the time on American owned companies.

2008 Jul 14 10:43 AM

[notsosmart:]

forget the analysts.think for yourself.if the analysts were really good they would not have to bother with the dribble they spout. they wouls all be named buffett.

2008 Jul 14 10:47 AM

[Gumby:]

Analysts never tell you what is hot stocks today? NEVER!! They dont know ..

2008 Jul 14 11:06 AM

[Gumby:]

Analysts always tell you what WAS hot stocks after they had gone up 800% or so . They never tell what is now climbing like crazy! Where are they?

2008 Jul 14 11:07 AM

[Stephen Ros...:]

Ford has an unbelievable debt load compared to other auto companies. They have failed to get out from under it for the past 10 years.
Ford had at best a razor thin profit margin last quarter. Even if Ford was able to achieve an operating margin like TM and apply most of the proceeds to paying down debt,it still would not be able to reduce its debt to a manageable level. In order to reach the lower debt ratio of TM, it would take Ford over 20 years -- and that's with operating margins of over 6%. F has simply dug a hole too large. Will Ford survive? Who knows? They've been surviving these last 10 years although it is hard to see why because their fundamentals are so bad.
As for the table, I don't know of anyone who has yet compared revenue per share, debt per share, and revenue per debt of this sector. Not the whole picture of a company's health but rather startling numbers nonetheless signaling the sad state GM and Ford are in.

2008 Jul 14 01:13 PM

[coeus89:]

most of the debt ford has is from the finance company which they still own. gm sold most of theirs to creberus. thus getting the debt off their books. the actual debt of the auto company(not the finance compant ford motor credit) is much smaller. but still large. they do have a long way ahead of them. but i think they will be fine if 10 years. so im long ford.

2008 Jul 14 01:41 PM

[Joey:]

GM and Ford needs massive overhaul. Here are some steps: 1) Get rid of the low selling vehicles 2) Build brands with new advertising agencies and pay them for their performance 3) Cut payroll by eliminating some of the highest paid employees 4) Build a future with more fuel efficient cars and trucks or build new technology for alternative energy cars

2008 Jul 14 03:27 PM

[Bopper54:]

Look at the cars that GM and Ford are producing and you will see a greatly improved product. Global competition brings us here with GM and Ford supplying health care and pensions to their retirees while Toyota and the Asian companies provide nothing in retirement. Hm, who really cares about their work force. What will the market look like without GM and Ford. Do you think that prices would lower? Hardly not!

2008 Jul 14 03:58 PM

[Beachcomer:]

If the top dogs at GM would have had enough testicals to say
"NO" to big oil when they had their electric car several years ago, they might not be in such bad shape. "Who Killed the Electric Car" should be required viewing for everyone!!!

2008 Jul 15 12:11 AM

[Distressed ...:]

I'd get into the ETNs, I dont' think this goes bk where senior debt holders lose out, they restructure possibly as a consequence to the common holders. Average down on the debt and make 15-16% with potential upside. If this goes down to $7 like Merrill stated, I'd even buy some puts along with your bonds. They will get through this, they need to shed the poor performing brands and rigourously get into the small eco vehicle transition. By then it will be 2013 and oil will be heading lower. They'll get through this, if not sell off all the parts to the foreign auto makers! :(
blog:distressedvolatil...

2008 Jul 15 01:03 AM

[livefoadren...:]

Unbelievable. That any Board of Directors would keep Rick Wagonner. All he does is listen to a buncha analysts on Wall Street who tell him to downsize. Downsizing is the kiss of death.

Grow some balls and expand the company you run, Rick.

If you aren't growing, then you are dying.

2008 Jul 15 02:24 AM

[Ames Tiedeman:]

I think GM has a real chance of being great by 2011 if it can stay solvent. The new models will sell.

2008 Jul 17 09:51 PM

[Ames Tiedeman:]

Ford is waking up. It is about time!

Ford Motor Co., in reaction to growing demand for fuel-efficient vehicles on its home turf, is reportedly looking at retooling some of its U.S. plants to build compact passenger cars it has already been producing and selling in Europe.
The moves could be announced this Thursday as part of Ford's second-quarter report, according to a story in the online edition of the Wall Street Journal on Saturday.
The broader U.S. auto industry has been slammed by rising gas prices and the persistent housing slump, and domestic automakers have been shuffling to more align capacity with demand by slashing truck production and ramping up assembly lines on the car side.
Toyota Motor Corp. (TM:89.29, -0.76, -0.8%) earlier this month made a similar move by announcing that it will build its popular Prius hybrid at a Mississippi plant that is currently under construction instead of the SUV it had originally planned to produce there. See full story.
Detroit rival General Motors Corp. (GM:13.18, +0.33, +2.6%) has also been shaking up its production plans but it has yet to announce concrete plans to bring some of the more well-received cars it makes overseas to U.S. factories.
There has been talk of selling the subcompact Chevy Beat concept, designed and to be built in South Korea, to the U.S., but GM recently threw water on the notion that it would be making it to U.S. shores any time soon, saying the car isn't engineered for the North America market.
GM does import the compact Saturn Astra into the U.S. from Europe, but the automaker loses money on each sale because of the weak dollar, analysts say. Ford can avoid taking that hit and can also offer more attractive price tags by building its European models on U.S. soil.
Ford CEO Alan Mulally pushed the plan but was met with resistance from others in the company, the Journal reported, citing people familiar with the situation. The opponents questioned whether Ford could meet the 18-month timetable, leading to another failed effort to sell European models in the U.S.
Ford will hand in its second-quarter results next week, with analysts polled by FactSet Research looking for a loss, on average, of 23 cents a share. See full story.
Shawn Langlois is a reporter for MarketWatch, and the editor of its community message boards.

2008 Jul 19 01:05 PM

[Tony the Car:]

Hey Bopper, time to update your stereotypes. GM just dropped its health coverage for its retirees. And the Japanese do provide for their retirees financial support. It's called a 401k, and its the retirement vehicle that most Americans now use, regardless of who employs them.
BTW, what do GM and Ford provide to their workers in Korea, China and Mexico?

2008 Jul 22 08:39 AM