Every news outlet has by now jumped on the lousy year-over-year sales comparisons recently reported by General Motors (NYSE: GM ) and Ford (NYSE: F ) . One thing I'm not seeing anyone discuss is what, if any, correlation these sales numbers have with the companies' operating performance.
Granted, it's usually a good thing when a company increases sales. In a normal situation, like over at rival Toyota Motor (NYSE: TM ) , sales are the profit engine. But when the profit engine's pistons are broken, as is the case with Michigan's Mediocre-est, you no longer have a normal situation. Some of the two firms' recent moves can be better understood when you abandon the simplistic model of "more sale good, less sale bad." (I almost said caveman model, but I've been made aware of my prejudices thanks to those GEICO spots.)
Both firms have decided to reduce their exposure to lower-margin sales to fleet customers -- i.e., rental car companies like Hertz (NYSE: HTZ ) and Avis (NYSE: CAR ) . Having looked at Hertz's statement of cash flows, I'm not sure which business is less attractive: car manufacturing or car rental. I'm glad I don't have to choose. I just steer far clear of both, and that works for me.
Plenty of analysts are more sanguine on the carmakers than I am, though. They've revved up ratings on GM shares in light of the company's prospects of cutting a deal with its workers' union, the UAW. Standard & Poor's estimates that this could save around $350 million annually. The more important prospect is moving health-care liabilities off of the companies' books and into a separate trust, similar to what was achieved at Goodyear Tire & Rubber (NYSE: GT ) . If that occurs, these lemons have a shot at making some lemonade.
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