Ford saw its sales of cars rise by 10.9% to 472,853 so far this year. This enables Ford to diversify its growth away from just trucks, whereas companies like General Motors are very dependent on its trucks for sales growth. Overall Ford has seen a 12.9% rise in car and light truck sales this year.
General Motors Company (NYSE:GM)
Ford isn’t the only company seeing strong sales and profit growth. General Motors Company (NYSE:GM) is becoming an economic powerhouse once again, as light truck sales work wonders for the company.
General Motors Company (NYSE:GM) made $3.4 billion in EBITDA in North America for the first half of the year. Sales of light trucks are up 13% this year, while sales of cars are up 3.4% for total sales growth of 9.1%.
One advantage Ford has over General Motors Company (NYSE:GM) is that Ford is seeing strong unit growth in both the light truck and car markets, while General Motors Company (NYSE:GM) is leaning heavily on its truck sales to boost sales growth. The rebounding construction industry will help buoy truck sales, but you never want to be dependent on just one thing. Just look at the SUV boom and bust.
In contrast, one advantage that General Motors does have over Ford is that GM sells light trucks and cars in a roughly 4-to-3 ratio, a more equal distribution than Ford’s roughly 2-to-1 ratio.
European Differences
Furthermore, GM’s better able than Ford to cut its ties in Europe. In GM’s Q2 2013 earnings report, it was able to lower its European loss to $110 million, from $200 million in the previous quarter.
GM has been idling factories and reducing output in Europe, including plans to convert a plant in Bochum to a parts production and logistics unit with less workers.
For all of 2012, General Motors lost $1.8 billion in Europe, but it looks like it will be able to reduce that significantly this year. General Motors doesn’t have to make money in Europe — it just has to lose less money so it doesn’t bog down great results in North America.
Ford wasn’t quite as lucky as GM, losing $348 million in its latest quarter (less than the $404 million it lost last year) and guiding for a loss of $1.8 billion in Europe for 2013.
This is better than the $2 billion loss management had previously guided for, and similar to the loss in 2012. Ford needs to clamp down on European losses faster or it will continue to weigh heavily on North American results.
In 2014 one of Ford’s plants in Genk, Belgium will shut down, with workers walking away with severance pay. This will greatly reduce Ford’s operating loss, especially when you factor in the cost savings from two of its UK plants shutting down.
Final Thoughts
Both Ford and General Motors have advantages and disadvantages over each other as far as investment opportunities go, but Ford is still my favorite in this space. With US auto sales rising and costs coming down due to less workers on the payroll and more efficient plant operating timetables, Ford is worth a closer look.
The article How Greater Efficiency Drives Up Auto Stocks’ Returns originally appeared on Fool.com is written by Callum Turcan.
Callum Turcan has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
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