Thursday, 24 July 2014

Ford versus General Motors: YTD share price differential opportunity?

It is useful that the two largest North American automotive companies reported their Q2 numbers on the same day...given there is one very decent YTD spread between the two due to the General Motors recalls:

Ford's earnings show mild positive progression for the second quarter year-on-year within which I am pleased to see pricing being positive (despite a bump up in incentives) and 'contribution cost' being kept under control.  Volumes/mix were down a little and FX was a net negative but overall the numbers were as benignly solid as an operationally geared business like an automotive company can offer.  

By contrast General Motors' numbers cannot be described as benign.  As shown below pricing is excellent but the mere US$1.2bn in recall-related expenses ruin any chance of sequential ebit progress.  

How about some other sales factors?  Well as shown below North America dominates profitability.  As for South America, well pricing was good but this traded off on volumes and combined with a negative FX impact led to the numbers below...

 ...which is actually remarkably like the broad thrust of GM's regional results.  GM Financial was (again) the second highest profits contributor and this would be the same for Ford too (not shown on the chart above).
So another similarity.  That big yawning YTD share price differential (admittedly much smaller over, say, a two year period) is really about the recalls and associated spin-offs from this.

All car companies have recalls although (admittedly) GM's are at a completely level of magnitude to any others recently.  Still the share underperformance has certainly factored something in.  That's even before we tough on GM's higher yield and lower (ex-exceptionals) valuation today.


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