General Motors vs. Ford: Calling a Winner

NEW YORK (TheStreet) -- Related companies are a common comparison. Look at Mastercard (MA) and Visa (V), Nike (NKE) and Under Armour (UA), or in this case, Ford (F) and General Motors (GM). 

While it would be easy to compare the companies' earnings per share growth or revenue models all night, it wouldn't be very helpful. Investors can do that on their own and it takes all of five minutes to figure out. 

In this case, there's one glaring obstacle that makes comparing the two companies all the more difficult: General Motors' recent bankruptcy. 

GM's 2009 Chapter 11 bankruptcy filing marked the low point for the U.S. auto industry. Unlike GM and Chrysler, Ford was able to stave off bankruptcy under CEO Alan Mulally's effective leadership -- but only barely, as the stock price traded down to roughly $1 per share. 

Shares of Ford have been incredibly strong this year, and admittedly, I've been quite bullish. But what about its Detroit brethren? 

When you consider that General Motors sold 9.29 million vehicles in 2012, second only to Toyota Motors' (TM) 9.75 million, it seems odd that Ford is generally heralded over GM. For what it's worth, GM took home the crown for top seller in the year prior, in 2011. 

Part of what likely helped GM gain so many auto sales in the past -- it was the reigning top auto seller for eight decades until 2008 -- was the amount of brands it used to own, like SAAB, Hummer, and Pontiac (the list goes on for a while).

Presently, it's been pulling home a large piece of the U.S. domestic sales pie. Year-to-date, General Motors holds 18% of U.S. auto sales, besting Ford by 2%. Its 2.34 million auto sales also trump Ford's 2.08 million units.

Brand to Brand

For the record, though, as far as individual brands go (rather than by company), Ford is the top-selling name in the states for 2013, as well as in 2012. It also boasts the top-selling vehicle, the F-Series truck. Of course, it only makes sense that the Chevy Silverado is in second.

There's another important consideration when it comes to brand: Luxury. 

Each company has its own luxury line. General Motors has Cadillac and Ford has Lincoln. To be frank, the latter is getting its ass kicked by the former, plain and simple. 

Year-to-date, Cadillac has sold 148,200 units, more than double Lincoln's 66,980. Mulally is making a point to fix Lincoln's luxury image, but so far, the sentiment hasn't shifted much. 

Although Lincoln's sales for the month of October increased 38% year-over-year, the brand is still lagging its total sales in 2012 of 82,150 vehicles. Even if it does best those numbers by year-end, annual sales growth will only be flat, or near flat, for 2013.

Compare this to Cadillac, which grew October sales 9.5% from last year, and is within 1,000 units of matching 2012's total figures (after only 10 months this year). Buick, another General Motors brand, has also done fairly well, selling just north of 175,000 units this year. 

Cadillac is flat out owning Lincoln, and that's hard to argue with.

It's also hard to argue with the Chinese auto market, where General Motors holds 15.5% of the market share. The Chinese auto market is huge, and is only likely to expand in the coming years, where it's estimated that 30 million vehicles will be sold in 2020. 

To read a more detailed breakdown of the nation's auto picture, read Domestic and International Fire Lights Ford's Ignition

Side by Side

Here is where one can make an argument for both Ford and General Motors. In one aspect, the market leader, GM, has a large exposure to a rapidly increasing market, which should bode well for a company that has 45% of its stock value tied to the country.

On the other hand, Ford is rapidly taking market share in China and quickly building out its infrastructure. Management hopes to have a 5% market share by the end of 2013, up from 2.5% in 2011, along with doubling its vehicle production to 1.7 million units by 2015. 

To me, it seems like Ford has more to gain and General Motors has more to lose, at least in the long-term. This is especially true if the global economy takes a hit. 

Europe has continued to be a struggle for each of the automakers, with both striving to be at break-even operation by mid-decade. 

The companies both seem so similar at times: Close in total U.S. sales, revenues ($115 billion for GM and $102.9 billion for F, year-to-date, respectively), and the fact that they both recently reported record profits (2011 for GM and 2012 for F).

One thing that's surely held back shares of General Motors was the once-large position held by the U.S. government. General Motors Round II details the re-launch of the automaker and the government's role within the company. 

But 2013 has seen much of the position liquidated. Reportedly, the U.S. government could hold as little as a 4% stake in the automaker, down from 7% on Sept. 26. That 4% would be roughly equivalent to 70 million shares. While this might seem like a lot, consider that the government started off with 912 million shares, or 61% of the company. 

After the IPO in November 2010, the government dropped its ownership down to 500 million shares, or 26% of the company. It would appear as though the selling is nearly complete, although the image may still bother prospective shareholders. 

Perception goes a long way in the investment landscape. When GM imploded, filed for bankruptcy, and re-emerged one year later, the public never saw it as brightly as Ford, which fought off bankruptcy and emerged stronger than ever -- although its management could potentially change soon. 

Although Mulally did vow to stay through 2014, if he left to become the next CEO of Microsoft (MSFT), it would be a great loss to the Ford team. Perhaps, though, Ford would continue to do well. Losses in Europe are shrinking, U.S. sales are accelerating and market share in China is growing. The company also pays out a ~2.5% dividend yield -- another reason shareholders might prefer Ford over GM.

GM's larger China market share should drive growth for the next several years, its luxury brands will boost U.S. profitability and the government has nearly unwound its position -- although the continued, systematic selling could hinder the stock price slightly. 

However, it doesn't seem as if it has so far. It's basically a wash as for which has fared better this year. Ford is up 32% while General Motors is up 33%. Arguments can be made both ways and I've tried to see evenly through each side. 

GM does have likable attributes, undoubtedly. But personally, I prefer Ford for a few reasons. I like the company's stability and the non-role of the U.S. government. I also like Ford's solid dividend and potential for increases down the road or perhaps a share buyback program. Ford is growing faster, rather than trying to maintain a behemoth-like grip on the world's auto market, like GM.

Ultimately, GM's losses could be Ford's gains. 

-- Written by Bret Kenwell in Petoskey, Mich.

At the time of publication, the author was long F, V and MA, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.

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