Will GM Ever Catch Ford in North America?

General Motors (NYSE: GM  ) has made some big improvements to its North American business since declaring bankruptcy several years ago. The company has introduced a wave of new models, many of which have become highly acclaimed. CEO Dan Akerson boasted this week that Consumer Reports had recently chosen the Chevy Impala as the best sedan, and the Chevy Silverado as the best truck, in the U.S.

Despite this industry recognition, GM has been unable to keep up with Ford Motor (NYSE: F  ) in terms of profit margin or total profit in the North American region. In fact, Ford has been building up impressive sales momentum that could potentially vault it past GM as the top automaker in North America by revenue. Is this changing of the guard inevitable, or can GM make a comeback?

Grinding away
The continuing gap between Ford and GM can be seen in the two companies' North American profit margin outlooks. GM's goal is to raise its North American profit margin (earnings before interest and tax) to 10% by mid-decade.

The company made good progress toward that goal last quarter, increasing its earnings before interest and taxes margin to 9.3%, up 160 basis points year over year and up 90 basis points sequentially. However, GM's management warned on Wednesday that the third quarter is a seasonally strong quarter for profit margin. Akerson told analysts that GM expects margin growth in 2014, but that investors shouldn't expect a straight path to the 10% target.

By contrast, Ford already hit the 10% margin level last year in North America. In fact, Ford reported that Q3 was the sixth time in the last seven quarters that it achieved a pretax margin of at least 10% in North America. Ford's Q3 North American pretax profit of $2.3 billion also came in ahead of GM's Q3 North American pretax profit of $2.2 billion.

The main catalyst in GM's attempt to close the gap with Ford in North America is the early 2014 launch of its redesigned heavy-duty trucks and full-size SUVs. Heavy-duty pickups are even more profitable than light-duty pickups and make up about a quarter of the large pickup market. The SUV launch is also a big opportunity for GM, because the company has long dominated the lucrative full-size SUV segment in the U.S.

Tough hill to climb
These developments are likely to help GM improve its performance next year, but Ford is not standing still. Recently, Ford has been taking some market share from GM in North America. In Q3, GM's market share slid from 16.9% to 16.7%, while Ford boosted its market share from 14.8% to 14.9%.

The gap has become even smaller in terms of revenue. Ford's North American revenue grew 11% in Q3 to $21.7 billion, while GM's North American revenue increased just 5% to $23.5 billion.

Ford leads GM in profit and margins, and now it's chipping away at GM's market share lead.

Looking ahead, Ford's growth catalysts are just as powerful as GM's. While GM is now several months into the launch of its new full-size pickups, Ford's best-selling F-150 will be redesigned for the 2015 model year. This means that the new models will start hitting dealer lots sometime next year. Ford is also poised to grow sales of its midsize Ford Fusion next year, due to the recent addition of a second manufacturing plant to boost capacity.

Foolish bottom line
GM is finally getting back up to par in the critical North American market, but it's still behind Ford when it comes to margins and profit. Ford has also been gaining market share, and has plenty of catalysts of its own heading into 2014.

In other words, Ford is showing no signs of stumbling, and a stumble by Ford is what GM would really need in order to leapfrog its rival in terms of North American profitability. Still, lagging just behind Ford isn't necessarily a bad place for GM to be. Ford still looks like the superior company, but based on the two automakers' Q3 earnings performances, it's clear that both can thrive simultaneously.

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Read/Post Comments (7) | Recommend This Article (1)

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 October 31, 2013, at 1:49 PM, AmericanFirst wrote:

    Ford has to be spot on to maintain their superior profit / margin metric. Remember, Ford is paying back their $25B loan and associated interest, which is a huge expense. This where GM has a tremendous advantage. GM's bondholders per GM Bailout were wiped out (approx. $30B), plus $B's in future associated interest expense. Why do you think GM has a 5x better debt/equity ratio?

  • Report this Comment On October 31, 2013, at 4:00 PM, lem2004 wrote:

    Give it up A.M.,the bail out is over now give it a rest!

  • Report this Comment On October 31, 2013, at 6:56 PM, andyco79 wrote:

    AM needs to take into consideration the hundreds of billions of dollars that would have been removed from the US and world economy if GM failed and took the entire American and part of the Asian automakers with it due to the failure of the parts suppliers in the US that any vehicles built here have to use for their parts due to safety regulations.

    AM needs to explains Fords quality issues as stated by Consumer Reports and JD Power. They rank the lowest of any American auto maker. GM ranks toward the middle and top of those tested. My sister bought one of those new Explorers and is having one problem after another with it including many repeating issues that Ford refuses to fix after the third time. This vehicle is still under its factory warranty too. She called Ford customer service and was treated very badly. She's filed a lawsuit against Ford and after a few weeks they decided to settle with her. Needless to say this is her last Ford and is going back to GM for good. Ford needs to stop riding the coattails of the bailouts. That train is getting ready to pull into the station and Ford will be the one getting off. Ford has not changed. Their quality is horrible, their customer service stinks, and it's more than just about the pennies it's also about quality. GM's quality has improved and they've won several quality awards recently. GM is striving for a long term survival where Ford is short sighted as usual by just trying to beat GM by the numbers. It hasn't happened and it hadn't happened in the past 83 years.

  • Report this Comment On October 31, 2013, at 8:19 PM, AmericanFirst wrote:

    Lemm,

    I spoke the truth, maybe I am wrong to think most people who comment on this site have a basic understanding of Accounting / Finance 101 concepts.

    Andy,

    Your are all over the map, actually laughable, while Ford is eating away at GM's market share. GM market share down .01%, Ford up .05% Sept. Ytd. , CASE CLOSED!

  • Report this Comment On November 01, 2013, at 12:27 AM, andyco79 wrote:

    Case closed on you and Ford!

    GM THEN! GM NOW! GM FOREVER!

  • Report this Comment On November 01, 2013, at 12:38 AM, andyco79 wrote:

    In all seriousness AM, you are the one all over place. You segway so much on government related topics just because you are angry at them and you WILL NOT address the real issues here concerning Ford. Instead you rant and rave about stuff that happened five years ago. You can't stand it that GM turned the corner and all that Ford is interested in is cutting corners to push out as many vehicle as they can just to beat GM in numbers. They tried that and it didn't work then and it's not going to work now. This will backfire sooner or later on Ford. That's all I'm going to say on the subject.

  • Report this Comment On November 01, 2013, at 11:35 AM, AmericanFirst wrote:

    Andy,

    My initial comments spoke specifically to the topic w/ truth. I'm sorry you apparently do not have or understand basic / fundamental accounting, financial concepts to understand how a company's Balance Sheet can effect a company's ability to borrow, invest in technology, pay dividends, fund marketing programs, etc. Whether you are a GM or Ford fan, it is undeniable that GM was advantaged incredibly per the the Gov/GM Bailout........that is factual.

    Per the GM Bailout approx. $50B was infused into GM, while approx. $30B in debt was removed. That is approx. an $80B swing or enhancement to GM's Balance Sheet as a result of the GM Bailout. If you don't understand this basic math, we can no longer have a conversation.

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