Research

Ford’s Strengths Are GM’S Weaknesses And Vice Versa

We previously published a five part research analysis report series articulating our thesis as to why we disagree with Berkshire Hathaway (BRK.B), (BRK.A) with regards to investing in Ford (F) versus General Motors (GM). After researching, analyzing and evaluation Ford and GM on 24 different factors, we concluded that Ford scored better on all of those metrics and that Ford provided a better potential investment opportunity than GM. Based on the recent performance of Ford versus General Motors, we can see that Ford’s strengths are GM’s weaknesses and vice versa. Our thesis is that GM has been better at generating total sales growth as well as its performance in the emerging markets of Asia and Latin America while Ford’s strengths are its cost management, developed markets of North America and Europe and finance company operations.

North America

Ford’s biggest market is North America. Ford North America’s Q3 2012 revenue grew by 8.3% on the strength of 2.65% wholesale unit volume growth and higher average selling prices. Although Ford’s market share declined by 1.5% on a year-over-year basis, we were pleased that Ford did not resort to deep discounting in order to “move the iron.” Ford North America’s market share decrease was attributed to the impact of discontinued products such as Ranger and Crown Victoria and as adverse industry segmentation changes for the full-size pickup segment as the F-Series share of the full-size pickup segment was higher compared with last year. Ford North America was also able to hold the line on expense growth as expenses only increased by 4.4% year-over-year in Q3 2012 versus the prior year’s comparable period. This resulted in Ford’s operating margin increasing from 8.6% in Q3 2011 to 12% in Q3 2012 and enabled its pre-tax profits to jump by more than 50%.

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