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Why Ford Is Beating General Motors

Ford Headquarters. Photo Credit: Ford Motor Company.

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.

Bottom line
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.

Ford is beating GM on the bottom line, but another factor may decide which automaker is the best investment. A recent Motley Fool report, "2 Automakers to Buy for a Surging Chinese Market", names two global giants poised to reap big gains that could drive big rewards for investors. You can read this report right now for free – just click here for instant access.

Read/Post Comments (30) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 09, 2013, at 3:34 PM, prginww wrote:

    Ford is also building the best cars on the market today, which is also helping put them in the lead. GM is currently building very poor quality cars since the bankruptcy.

  • Report this Comment On July 09, 2013, at 3:59 PM, prginww wrote:

    guysisson doesn't know what he is talking about.

  • Report this Comment On July 09, 2013, at 4:09 PM, prginww wrote:

    I have owned two Chevy's in the past 8 years, and the one I just purchased, brand new 2013 has faulty break pads due to a bad material that was used. So if the something like the brake pads are made with such poor material, I am concerned about the rest. I don't know, I need to learn to research better when buying a car and actually wish I kept my 05 since it was paid off. Now I will deal with a whole new host of issues. Not sure who I will purchase from in the future, but I doubt it will be chevy.

  • Report this Comment On July 09, 2013, at 4:12 PM, prginww wrote:

    Shocker, the company that didn't go bankrupt makes better cars.

    Instead of selling off the assets of GM, the government propped them up and rewarded and promoted the middle management producing an awful product.

    Is it really a huge shock that the same people running the same company that wasn't doing very well before aren't doing very well now?

  • Report this Comment On July 09, 2013, at 4:24 PM, prginww wrote:

    Why is Ford beating GM? Take a look at the Ford lineup! They have some really sweet looking automobiles these days. Even the Focus is sharp and filled with all of the modern goodies. Good for Ford. I'm a shareholder now.

  • Report this Comment On July 09, 2013, at 4:30 PM, prginww wrote:

    GM took the taxpayer bailout and built production facilities in China. Way to go, GM!

  • Report this Comment On July 09, 2013, at 4:32 PM, prginww wrote:

    The best lineup at GM was Saturn, which was shuttered because it wasn't a union shop. Attaboy, reprosteve.

  • Report this Comment On July 09, 2013, at 4:36 PM, prginww wrote:

    For honestruth, please remember that components like brake pads come from Tier 1 suppliers. You did not mention the model you have; but a Tier 1 supplier would be making these pads; not GM. Now there could be spec differences that the supplier needs to meet but generally this grade of material would probably be what you would find in the industry. Go back to dealer and find out what is happening. For guysisson, latest reports show GM at the top of quality reports; better than ever before with Ford dropping. Ford's drop has to do with the problems with their in vehicle technology like My Touch. Both manufacturers have had recalls, but generally neither Ford of GM have serious quality problems at this time. For the author Daniel Miller, GM had to delay several introductions or launches due to bankruptcy; but 2014 brings out several new platforms that should help them out with market share; especially with pickups and with the Cadillac division.

  • Report this Comment On July 09, 2013, at 4:40 PM, prginww wrote:

    You would think once GM was under big government’s stewardship, that GM would flourish by example from the high standard of integrity and competency that the US government holds itself too.

  • Report this Comment On July 09, 2013, at 4:41 PM, prginww wrote:

    If GM had kept the favorite models from each division and discarded the rest, it would have saved the company and kept a lot of loyal buyers.

    (Long time Oldsmobile owner)

  • Report this Comment On July 09, 2013, at 5:02 PM, prginww wrote:

    Total06110, Saturn was not the best lineup at GM. They did probably have the best dealer relationship with their customers, but their cars were substandard. Btw, Saturn was a union shop. They did operate under a much looser format than other GM plants did though. Far less work rules and a generally good relationship with their management.

  • Report this Comment On July 09, 2013, at 5:04 PM, prginww wrote:

    Total06110, GM had built plans in China long before they go into financial trouble. It was their North American operations and the horrible labor contracts they had that did them in. They were making money in China and losing their shirts in the US.

  • Report this Comment On July 09, 2013, at 5:07 PM, prginww wrote:

    I said years before it happened, Saturn should have bailed from GM.

  • Report this Comment On July 09, 2013, at 5:11 PM, prginww wrote:

    If you buy a new car, get ceramic pads installed. No brake dust. Rotors & the friction material lasts much longer. Ceramic cools faster vs. semi metallic retails heat longer which causes warping of rotors, if the pulsing in the pedal warrants a trip to a dealer they will turn your rotors which greatly reduces the life expectancy of rotors since they are shaving down your rotors until they are smooth again.

  • Report this Comment On July 09, 2013, at 5:12 PM, prginww wrote:

    The author of this story in clueless to how the automotive business makes money. No automotive North American headqurtered manufacture makes money in North America or Europe from automobiles. A little money is made from trucks. This is because of the high union labor cost both in Europe and the U.S.

    The real profits come from China where GM is killing Ford and has been for 15 years. (Long before the bankruptcy) The rest of the profits come from the aftermarket business worldwide.

    GM has not had a free hand in their decision making since Obama and his team of pro-union ideologist took control . No one talks about GM's plans to dump the money losing electric Volt before Obama said no. No one talks about how GM wanted to abandon their white elephant headquarters in the Democratic city of Detroit until Obama said no. No one talks about how GM wanted to sell their cost losing European Opel Group until Obama said no. No one talks about how GM was forced by Obama to redo their local U.S. union agreements in which costly and non competitive work rules were shoved down GM's throat. Until the government gets their hands out of GM's pants they will never stand a competitive chance.

  • Report this Comment On July 09, 2013, at 5:12 PM, prginww wrote:

    Alan Mulally and the Ford family are the reason that Ford has done so well and didn't need a government bailout. The first thing Alan did when he came to Ford was greenlight a credit line that Ford had already been working on. It was for $26 Billion and included mortgaging everything including the Ford Blue Oval trademark. That credit line which was obtained just months before the credit shutdown is the only reason Ford didn't need a bailout. They were in actually worse condition than GM but at least they had the money to see them through the crisis. Mullally's leadership and the Ford family's backing is what differentiates Ford from GM. GM has a dysfunctional board and management. The sooner they elevate Mark Reuss to CEO the sooner GM's future will get better.

  • Report this Comment On July 09, 2013, at 5:21 PM, prginww wrote:

    Vonsteuben1- You're absolutely wrong. Prior to the recent shakeout in the US auto industry the Big 3 were losing money in the US. They were saddled with high labor costs and unsustainable medical and pension costs. The bankruptcies and renegotiated labor contracts changed that picture considerably. Now ALL of the Big 3 automakers are making LOTS of money in the US. They are even able to produce small cars like the Chevy Cruze and Sonic and Ford Focus and Fiesta in the US profitably. That's a first for the US auto industry. Btw, the Obama administration didn't veto GM offloading Opel, it was Big Ed Whitacre and the GM board who over ruled Fritz Henderson. Just another example of how bad GM's board still is.

    As far as China, it is the largest auto market in the world and all of the world's automakers want to be there. The problem is the profit margins are quite small on the cars that GM and Ford are selling there. The real volume in the Chinese market are cars that cost less than half of the US average and those margins are slim.

  • Report this Comment On July 09, 2013, at 5:24 PM, prginww wrote:

    "Why Ford Is Beating General Motors",.. Let's see Better Quality, Better Price, Better Features, Better Selection, Better Financially!!.. NO MORE BAILOUTS!!! GM needs to pay America back,.. they still owe us $60 Billion plus!!!

  • Report this Comment On July 09, 2013, at 5:32 PM, prginww wrote:

    I don't know about that, I own a 2009 F150 I bought new, it only has 36,200 miles and it failed inspection at the dealer (Basil Ford) in Cheektowaga NY 2 years in a row. Last year the rotors rotter's out and Ford would not cover them and this year their were 2 problems, the 02 sensor and a power steering leak which seems a bit fishy as I see no oil on my driveway.

  • Report this Comment On July 09, 2013, at 6:02 PM, prginww wrote:

    As much as this hurts to say GM was named most reliable car AHEAD OF TOYOTA!!! I couldn't believe it myself but I read it in an article. Not sure but I thought it was New York Times

  • Report this Comment On July 09, 2013, at 6:24 PM, prginww wrote:

    Ford actually borrowed 23.5 billion in 2006.

  • Report this Comment On July 09, 2013, at 7:23 PM, prginww wrote:

    Those who are on here trying to turn this into a Ford vs GM thing are missing the whole point. BOTH of these companies are now building outstanding products and BOTH of these companies will still, on occasion, make a swing and a miss. Still, they are BOTH vastly better companies than they were a decade ago and BOTH will continue to proper to the benefit of the American economy and American workers. Did you know that Ford and GM are jointly developing a new high tech transmission that will be used in BOTH GM and Ford vehicles? They will always compete and the gearheads (myself included) will always enjoy the back and forth banter about which is best, but those Mustangs and Camaros are going to be sharing more and more parts sourced from the same suppliers and those who get too biased are just displaying their lack of knowledge of how these new cars are actually designed and produced.

  • Report this Comment On July 09, 2013, at 7:44 PM, prginww wrote:

    Ebickel - Ford actually went to the equity markets in 2006 to borrow money including putting the Blue Oval itself up as collateral. They did not take a government bailout as GM and Chrysler did at the time. No bailout, paid back the loans and now increased market share. Yes, I'll stick to the winning team - Ford Motor Company.

  • Report this Comment On July 09, 2013, at 7:58 PM, prginww wrote:

    Whether anyone "loves" or "hates" a particular company does not matter much. The only thing that really is a customer who votes with their money. Both GM and Ford are making money and that is ultimately the only thing that really matters.

  • Report this Comment On July 09, 2013, at 11:27 PM, prginww wrote:

    General motors has been doing very stupid things for at least a decade. They do not care what their customers what. They killed Oldsmobile which was the longest lived brand, But first they took it from its roots of being " a rich man's hot rod and a poor man's Cadillac " and made minivans. Bone heads !!

    I am truly surprised that they are business at all.

  • Report this Comment On July 10, 2013, at 6:19 AM, prginww wrote:

    Hunter, who do think put Ed Whitacre and the puppet board members in place that vetoed Fritz Henderson's recommendations? Answer,the Obama administration. As far as the labor costs you are referencing those costs reside in the national agreements. I am referring to the local plant agreements. The local individual plant labor agreements are where the real cost burden resides. There is not a North American based auto company making profits at any of their car assembly plants unless they are working two shifts. In N/A it is impossible to make money building only 120,000 car units per year. Profits come with trucks,luxury vehicles, and volume. I don't know the basis of your assessments Hunter but I spent 30 years working between Ford and GM. Don't believe any of the press clippings you read about GM. Every press release that GM issues is reviewed first by someone in the Obama administration. Don't judge GM until the government gets out of their business. The only reason Ford didn't get entangled in the Obama web is because Ford had just mortgaged the entire company and thus had billions in the bank. That plus the 300 plus Ford family members living off the Ford Motor company revenues who did not want to loose their livelihoods.

  • Report this Comment On July 10, 2013, at 7:41 AM, prginww wrote:

    The way people talk about GM, I often wonder why they ever did this;

    1942, Production Goes to War

    General Motors converted all of its production to the Allied war effort and delivered more than $12 billion worth of goods, ranging from airplanes to tanks, marine diesel engines, trucks, machine guns, and shells. No other manufacturer delivered as much material to the Allied forces.

    Additional Information: Here is a list of the WWII General Motors War Material Production 1940-45: (This is the best list I could assemble from the contemporary sources at war's end)

    198,000 Diesel engines for tanks & landing craft

    206,000 Airplane engines

    13,000 Complete bombers and fighter planes

    97,000 Aircraft propellors

    301,000 Aircraft gyroscopes

    38,000 Tanks, tank destroyers and armored vehicles

    854,000 Trucks, including amhibious DUKWs

    190,000 Cannons

    1,900,000 Machine guns and submachine guns

    3,142,000 Carbines

    3,826,000 Electric motors

    11,111,000 Fuses

    360,000,000 Ball and roller bearings

    119,562,000 Shells

    39,181,000 Cartridge cases

    540,619,000 Grand Total

    To this day, the government has not forgotten GM's contribution

  • Report this Comment On August 23, 2013, at 11:13 AM, prginww wrote:

    And Ford built everything else. Don't be an idiot! Sorry, are you still working for gm in America?

  • Report this Comment On August 23, 2013, at 11:16 AM, prginww wrote:

    PS, not a good analogy....... remember sherman tanks and trimotors. I guess they were good at making little things.......look up the Ford contribution....

  • Report this Comment On October 10, 2013, at 10:21 PM, prginww wrote:

    Good point, can't forget the Ford contribution to the war efforts. Providing funding to the NSM helping to finance Hitler with money from the sales of automobiles and trucks that he had sent to Germany.

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