Novice Investing - GM, Ford Latest Spin

Date: Monday 01st 2008f December 2008 04:12:18 PM

GM, Ford Latest Spin - 06/02/2006

By: Novice Investing Staff

Troubles that has been plaguing both General Motor Corp. (GM) and Ford Motor Corp. (F) has entered its third year now. Actually, the root of the problem has grown much longer. But the past three years is when investors woke up and realize that the problem is too profound to ignore.

The problem is old case. Mainly, burdening pension & health care cost, unionized workers wanting more, fragile cars that break down a lot and finally, unappealing car designs. These combo has resulted in a bloated cost and declining sales, not a good combination for any companies.

Both GM and Ford has countered with several insignificant defense such as giving out rebates while ignoring the main problems that we had pointed out so far. To generate sales, you need to make cars that people wants not what you sell. Coming into June 2006, however, there are several discouraging news from both automakers. Mainly, it was reported by Harbour Consulting firm that shows that six of the ten most efficient car manufacturing plant in America are run by Ford and General Motor.

That is encouraging news. At least, both automakers are not less efficient than their Japanese counterparts. This report does not show that Ford & GM become more efficient out of the blue, however. Both companies have been improving their efficiency slowly for the past seven years. All the more reason to celebrate. If the automakers can tackle another two persisting problems, they are on their way out; that is, to manufacture cars that people want and lessening the burden of their pension cost.

At this moment however, those two aspects still look dim. Through May 2006, GM and Ford sales year to date are down 8% and 3% respectively. Share price for GM has bounced off the recent low of $ 18 to current price of $ 26.31, a respectable 45% bounce. Meanwhile, Ford has bounced from the low of $ 6.75 to $ 7.11 now, a meager 5.3% bounce.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding General Motor Corp. (GM) or any other securities.

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