Will Ford and GM Forever Take a Back Seat to Toyota?

Includes: F, GM, HMC, TM
by: SA Eli Hoffmann

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

HEARD ON THE STREET: GM, Ford Seen Regaining Drive To Race Toyota

  • Summary: In light of Ford appointing Alan Mulally as CEO yesterday, the article takes a look at the performance of three major players, Ford Motor Co. (NYSE:F), General Motors Corp. (NYSE:GM), and Toyota Motor Corp. (NYSE:TM) in the auto industry. The current landscape: Light vehicle sales: GM 24.8%, Ford 17.7%, Toyota 15%. Gross revenues: GM $205b, Toyota $185b, Ford $170b. Cash/Short-term investments: Ford $23b, GM $20b, Toyota $18b. Share prices change over past year: Toyota +30%, GM -3%, Ford -13%. Market capitalization: Toyota: $197b, GM $17.4b, Ford $15.4b. [Note the discrepancy; GM and Ford both trade at prices below their cash/short term investments; Toyota trades at 10x theirs.] Past 4-quarter profits: Toyota $12.6b, Ford -$1.6b, GM -$11.3b. Forecasted EPS for 2007: Toyota $8.22, GM $4.91, Ford -$.23. Question: Will Ford and GM continue to be dominated by foreign competitors, or can they take steps to regain favor in Wall Street's eyes? Bullish arguments: Today's pain and investor dissatisfaction will lead to cost-slashing and improved profit margins. Bearish arguments: Massive employee-benefit costs will continue to give foreign competitors a clear path to dominating the market.
  • Comment on related stocks/ETFs: Ford's woes have been well documented. The article focuses on cost-cutting as the solution to the auto-makers' woes; others have argued with conviction that GM and Ford did not lose a million annual sales each just because of high costs—their products are not hitting enough hot spots. While GM has been aggressive in their cost-cutting, offering cash incentives of up to $140k to get union workers to retire, Ford has been looked at by Wall Street as playing a weak game of catch-up. Honda Motor Co. (NYSE:HMC) is another foreign auto manufacturer that has been taking advantage of its weaker domestic counterparts to pull ahead of the pack. Not everyone has jumped on the bandwagon, though; Stephen P. Brown takes a bullish stance on Ford, just "because so few do."