Delphi Bankruptcy Gm
Why is Ford worth 44% more than GM?
Ford’s market cap is 16.39 billion, GM’s is 11.39 billion. This is relatively recent, in October of 2007, GM was worth much more. It also has a 5% dividend yield while Ford has none. I understand that the American Axle strike and Delphi bankruptcy have held down GM’s stock but those are short-term issues. Long-term, GM should still be worth more than Ford right?
There are many metrics to compare the “value” of Ford versus GM. Yahoo Finance lists them in the Key Statistics area of the stock page for each stock.
A quick glance confirms that Ford is “valued” at higher ratios than GM for most of the metrics cited.
You have to keep in mind though, that the metrics cited are backward looking and accounting driven. In other words, they are from the last reported accounting period (or whatever period Yahoo uses). GAAP reporting does not always capture a company’s true value. GM may have taken more accounting charges than Ford (especially for their recent deal with their labor unions) that temporarily reduced their GAAP statistics. One metric that I did not compare for both companies was their cash flow, which might present a better picture of how much money they are actually making (without the various accounting charges).
Finally, Ford owns 100% of Ford Motor Credit, a finance subsidiary which itself has publicly traded debt. I believe Ford Motor Credit was not involved in any subprime mortgage financing and was strictly involved in financing cars and dealer inventory. GM sold a 51% interest in their financing subsidiary, GMAC, to Cerebus. I believe they continue to account for their 49% interest in GMAC under the “equity method” which might produce a different valuation than Ford does for its holding of Ford Motor Credit. Also, GMAC was involved in subprime mortgage financing through its holding of Residential Capital and other aspects of residential funding (like title insurance) and had to contribute millions of dollars to keep ResCap solvent. Finally, Ford recently sold its Jaguar and LandRover divisions to Tata Motors of India, and after that deal closes, the accounting charges (assuming they show a loss) might reduce Ford’s overall value (for accounting purposes).
Longer term, the relative value of each U.S. car company will be determined by which company can better reduce its costs (chiefly its high union wage and health care costs), produce cars that people actually want to own (hybrids, etc.) and more importantly, expand into the various growing emerging markets. I have heard that GM has a tremendous headstart (even ahead of Toyota) in this area and sells a ton of cars (some through joint ventures) in Russia, Eastern Europe and now China. I don’t know much about Ford’s position in these areas. Clearly, both companies will be able to make more money in these markets than they can in the US because of their legacy costs here (where they still have to pay laid off union workers who are no longer actually working).
GM Sells Hummer, Delphi Not Bankrupt – Autoline Daily 155
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