Ford (NYSE: F ) and its crosstown rival General Motors (NYSE: GM ) have been battling for a century to be the best-selling domestic automaker. It's hard to believe after so much time that the automakers are still really neck and neck here in the U.S. market. With the first half of the year in the record books, GM sold 1,420,346 units in the U.S. compared to Ford's 1,289,736. Ford is narrowing the gap and has increased its market share more than any other automaker from the same time period last year. Ford's 13.1% increase over last year's sales was also the second best of all automakers – only because Subaru had such a smaller unit of base sales to increase from. While Ford continues to narrow the sales gap there's more to the story here – Ford is killing GM on the bottom line.
Top line vs. bottom line
In many ways Ford and rival GM represent a yin-yang relationship, where one's strength represents its rival's weakness. GM still ranks atop the U.S. in sales, and competes with Toyota globally for the sales lead creating its strength in top-line revenues. On the other side, Ford has its strength in consolidating platforms and streamlining production to create strong margins and profits – strengthening its bottom-line profits. That's where I believe Ford has won the game thus far, and should continue to do so.
In 2006, when Alan Mulally was introduced as CEO, the launch of his "One Ford" plan emphasized a few key strategies right off the bat. One of those strategies was streamlining global platforms. No longer would Ford have different platforms for similar vehicles in various markets around the world – a huge operating cost.
To explain a little better, consider that Ford's "C" platform produces two very different vehicles that can be produced with many of the same basic parts on the same assembly line. Two of the vehicles on the "C" platform are the Focus compact and the Escape SUV. Creating both of those different vehicles using some of the same essential parts creates economies of scale and increases profitability per vehicle.
Taking a step back and looking at the big picture, consider that Ford had 27 platforms in 2007, but by next year that number will be reduced to 14. Ultimately it will be down to as few as nine core platforms, giving Ford a unique ability to create many different vehicles and focus on improving the quality of the parts used.
GM, who is years behind in consolidating its platforms, had 30 platforms in 2010 and plans to narrow that to 17 by 2018. This is definitely part of the reason that Ford's operating margins in North America were 11% in the first quarter, whereas GM only managed 6.2%. It's also part of the reason GM's net income in North America last quarter was $1.18 billion, trailing Ford's $1.6 billion.
Ford is years ahead in streamlining operations and consolidating global platforms. GM is taking notes and will fix its weakness, but I believe that by the time GM does so, Ford will have increased its sales and market share through its new and popular vehicles, and could leap over GM for the best-selling automaker in the U.S.
Only time will tell which automaker brings the greatest returns for investors, but one thing is for sure: Both are correcting mistakes and weaknesses that have lingered for the last decade. I think both are great investments with their respective company improvements, and the momentum in the automotive industry looks to remain strong in the years ahead.
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