Better Ride for Investors: Ford or GM?

• Report this Comment On October 26, 2011, at 10:02 PM, kmacattack wrote:

  Great, great video analysis without the political agenda of Fox, CnBC, etc. I disagree with all of the panelists, though, about the "cyclical" nature of the business. Although that has been true in the past, it normally has been due to the fact that the automakers have been caught with their pants down building the wrong cars at the wrong time. When the tax cut proposal was passed in congress allowing a 100 percent write off in a single day for vehicles over 6,250 pounds, many people bought gas guzzlers as a tax dodge. You could buy a 9 MPG Hummer for $80,000 and wipe out the entire expense in ONE DAY for the prior tax year. When gas prices hit $5.50 per gallon, largely due to administration allowed manipulation, you couldn't give a Hummer, or Excursion, or Expedition, or Suburban or Tahoe away, remember? And the automakers had geared up to build these high margin vehicles and were loving the profits, until they were stuck with millions of the beasts in inventory. Meanwhile, the Japaneese weren't in the gas guzzler business, and they built smaller SUV's which got better mileage, but they weren't selling very well either. Ford and GM had only a few high gas mileage models available, such as the Focus and the Cavalier, but both companies were selling these cars as "leaders" at very little profit. Now, both manufacturers are still building trucks, but much of both their product lines are in smaller fuel effecient cars, hybrids, etc. Now, when Ford sells a Focus, they make a nice profit on the car, as does GM on their "base models". The automakers have embraced the new government mileage standards which will require cars to get about 50 mpg within a few short years, because they have the technology available now to do it. The American fleet is now an average of 10 years old, the oldest by far ever. Those cars are wearing out, the maintenance is expensive, and the fuel economy is far worse on average than new cars provide. For people driving 15,000 miles per year or more, it's going to make sense to trade in (or junk) the old clunker for a new efficient car that will have far less repair and maintenance expense for the foreseeable future. The "cyclical" nature of the car business, as far as GM and Ford are concerned is a result of relying on the government to make sure that oil companies don't gouge consumers with artificial manipulated prices. But both these companies have lobbyists, and both should know that the oil companies elected the prior administration and much of the congress. Big oil contributes 85 percent of "campaign contributions" to republican candidates. They always have and always will. In the instance of the other 15 percent, they will give to both parties in a tightly contested race, insuring that they back a winner, who will owe a political debt to big oil. While Exxon was making $50 billion net per year in 2007, GM and Ford, and the entire American economy which is run on oil, were going down in flames., both events as a result of $5.50 gasoline. But politicians who are elected, then kept in place by a powerful lobby almost never turn their back on their real "employer". Congressmen seldom bite the hand that feeds them. But now, if oil goes up, GM and Ford are poised defensively to deal with it since they have many fuel efficient cars. If oil goes down, their big truck sales will likely be better, and those are their most profitable vehicles, so they win either way. And, I think that most Americans want the Big 3 to succeed. They have been such a huge part in the rise of the largest middle class in the world, most people, I think, feel a kinship to the American Auto Industry. If Detroit is building quality, fuel efficient cars, I would rather purchase an American nameplate than a Japanese or Korean car.

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