You’re heard this one?
Q: What did the Ford say to the Buick on the side of the road?
And this one: “Friends don’t let friends drive Fords.”
Yes, the world is littered with hoary old wisecracks and one-liners about Ford Motor, General Motors and their products. But there is nothing funny about Ford and GM. The jokes no longer apply.
Both have emerged from the financial crisis as 21st century car companies – solidly profitable, disciplined, technologically progressive and with clear plans to evolve into world-class mobility providers and technology spinners.
No one expected these so-called relics of the rust belt to emerge from a crucible of crisis and near-extinction as two of the world’s most formidable car companies. But the staggering truth is that it’s happened.
Ford and GM have cleaned out the arteries of their sclerotic internal cultures. The in-fighting bred of excessive in-breeding at the top of both companies has been either silenced or eradicated. GM and Ford have rebuilt and reinvented themselves in a world of unpredictable governments, global economic meltdowns, whimsical consumer tastes, demographic shifts, relentless and fierce competition, wars, revolutions, political upheavals and unpredictable acts of nature.
Yes, it is true that today’s most jaundiced members of the investor and consumer class simply cannot believe that GM and Ford have changed. The sceptics argue that the ways of Detroit remain as poisoned as the water in Flint, Mich. And they point to the apparent disruptive innovators of Silicon Valley – the Teslas, Googles and Apples of the world – and say, “This is the future of the auto industry.” Detroit is dead, or dying.
Not true. GM and Ford have fixed themselves and are poised to dominate the auto industry for the next decade. It is wrong to conflate the general decline of Detroit the city with the fortunes of Ford and GM. Yes, you had reason to give up on GM and Ford when you saw Pintos exploding and Fieros catching fire on the nightly news decades ago. But this is 2016, not 2006, or 1996, or 1986 or 1976. The transformations at Ford and GM have been just short of miraculous.
Indeed, if GM and Ford are not the world’s two best car companies, they certainly rank among them. Not bad for two automakers who clawed their way out of bankruptcy (GM) and near-bankruptcy (Ford) within the last decade.
Believe the numbers. Last year Ford earned $7.4 billion in net income on booming sales (all figures in U.S. dollars). Ford is now averaging a profit of $3,000 per vehicle, versus a loss of $2,500 per vehicle in 2008. Ford pays a 5.0 per cent dividend yield and its bargain-basement shares trade at just 6.0x earnings. Ford is so rich, it’s giving a special dividend to shareholders.
Ford CEO Mark Fields says his company has a strong core business; in 2015, the company launched 16 new products around the world. In 2016, profit-spinning models like the Fusion, Escape and Super Duty pickup will be reinvented.
Ford’s long-term vision looks well beyond the F-Series pickup, too. Ford has very advanced plans to take advantage of a coming marketplace filled with autonomous cars, electrification, connectivity and such. Forget about Ford the car company. Instead, look at a Ford “transforming into an auto and a mobility company,” says Fields.
And GM? Last year the General earned $9.7 billion in net income. GM is now the No. 1 car company in the world’s biggest car market, China. Cadillac’s rebuild is accelerating, Buick is emerging as a powerhouse, Chevy is a truly global brand and the Bolt EV is Tesla’s Model 3 – only the Bolt is hitting showrooms later this year, at least 18 months earlier than the Tesla. Investors know that GM boasts a 5.2 per cent dividend yield. Valuation? GM trades at 5x trailing earnings, 5.2x forward earnings.
GM’s shares may be valued like junk, but the company’s products and services should create great wealth for years to come. GM has fully embraced the trend to ride-sharing, electrification and all the rest. CEO Mary Barra says GM sees disruption ahead for the auto industry, but unlike in the past five decades, GM plans to lead that disruption, not be run over by it.
Ford and GM had a great 2015 and so far 2016 is solid. What’s more interesting, what is a massive departure, is that both are poised to dominate the auto game for the next decade and beyond.