And in this, all three Detroit automakers have received some sort of government money (yes, Ford Motor Company (NYSE:F) included) at some point over the past few years. Here, I will provide an update on the state of the Big Three today and give investors the opportunity to decide whether they want to invest in the Motor City once again.
Loans, reorganizations, share sales, foreign takeovers, and dividends
The federal bailouts and subsequent restructurings of General Motors Company (NYSE:GM) and Chrysler were as much a political debate as they were investment decisions. Shareholders of the companies were wiped out as General Motors Company (NYSE:GM) was restructured under government ownership (leading to the nickname Government Motors) and Chrysler was restructured and sold to Italian automaker Fiat.
Unlike with many of the loans made to financial companies, the bailout of General Motors Company (NYSE:GM) currently has the federal government well in the red. This is despite a turnaround at GM that has led to positive earnings once again and a share price in the mid $30 range. With another share sale by the Treasury and General Motors Company (NYSE:GM) returning to the S&P 500 after Heinz is leaving, the future of GM’s private shareholders looks brighter than that of taxpayers unlikely to recoup the funds they invested.
Chrysler was another story of an automotive bailout but it was taken over by Fiat in another attempt to rebuild Chrysler into a stable and profitable automaker. Since then, Fiat has been able to refinance the Chrysler debt and has allowed the government to exit its stake in the company with a loss of over $1 billion for taxpayers.
As Chrysler’s majority owner, Fiat has a lot riding on this American automaker both in terms of investment dollars and in expansion potential. After exiting the American market decades ago, Fiat is using its acquisition of Chrysler to introduce new Fiat products into the American market. The Fiat 500 is already here, but many are expecting a new iteration of the Alfa Romeo Spider to return along with other Italian offerings.
Ford Motor Company (NYSE:F) is often given the position of the only automaker not to take government money. However, this statement is only partially true. Ford did not take bailout money or undergo the restructuring process that General Motors Company (NYSE:GM) and Chrysler went through, and the Treasury never took an equity stake in Ford Motor Company (NYSE:F). But, Ford did receive a $5.9 billion Department of Energy loan to revamp production facilities and develop advanced technology vehicles.
For those wondering, yes this is the same program that made loans to Nissan, Tesla Motors Inc (NASDAQ:TSLA), Solyndra, and Fisker. Unlike shareholders of the pre-bankruptcy General Motors Company (NYSE:GM) and Chrysler, Ford Motor Company (NYSE:F) shareholders have enjoyed a strong rally in the price of their shares as the stock that traded under $3 in 2009 has risen to more than $15 today. To top it all off, Ford even rewards its shareholders with a 2% dividend, showing that the healthiest companies are the one’s that take action before the economic downturn.
Return of the Big Three
Even though GM, Chrysler, and Ford Motor Company (NYSE:F) have come far from the bottom, the auto industry has changed from the one that built Detroit. Foreign competitors like Toyota Motor Corporation (ADR) (NYSE:TM), Honda, Hyundai, and Nissan have taken large swaths of market share from the Big Three and in the process, shaped the auto industry into a place with more medium sized competitors rather than three automotive giants. Yet, the future still brings opportunity to General Motors Company (NYSE:GM), Chrysler, and Ford Motor Company (NYSE:F).
A rebound in housing activity has more people purchasing cars and the demand for construction brings more sales of pickup trucks. Additionally, emerging markets have billions of people looking to climb into the middle class and the car is often a symbol of this accomplishment. The road ahead may not be entirely smooth, but look for automotive companies to benefit from a combination of positive economic trends and an increase in worldwide demand over the next several years.
The article Detroit Update: Where Are the Big Three Today? originally appeared on Fool.com and is written by Alexander MacLennan.
Alexander MacLennan owns shares of Tesla Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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