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NINETY EIGHT REGENCY

GM vs. Ford: Who's turning around faster?

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GM vs. Ford: Who's turning around faster?

By Alex Taylor III, Fortune senior editor

November 13 2007: 11:10 AM EST

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GM chief Richard Wagoner has an edge over his rival at Ford: He's been in the job a lot longer.

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Alan Mulally, Ford's CEO, took the wheel a little more than a year ago. His turnaround strategy needs time.

(Fortune) -- If you believe what you read in the newspaper, you'd think that Ford had put on a late surge and was speeding ahead of General Motors in their race for profitability.

"Ford Motor Co., not General Motors Corp., suddenly appears to be on a faster track to profits," the Wall Street Journal declared last week. "Their respective turnaround efforts are running in different gears."

But if you dig a little deeper into their respective results at core North American operations, you might come up with a different conclusion. Despite GM's frightening $39 billion loss (due mostly to an accounting adjustment), most indicators put it in the lead.

First, let's take a look at Ford's results. No question, it performed much better than in 2006. Its third quarter pre-tax loss in North America amounted to $1 billion vs. a loss of $2.1 billion in the same quarter a year earlier. True, Ford's market share shrank significantly from 15.5% in 2006 to 13.4% in 2007. Likewise its retail share also declined, from 11.7% to 10.5%. But a slightly richer mix of vehicles -- more high-priced Lincolns, for example -- produced a $1 billion bump. And Ford sold fewer cars to low- or no-profit fleet buyers.

Surprisingly, however, Ford (Charts, Fortune 500) showed no benefit from cost-cutting. Gains in manufacturing, engineering and overhead were offset by higher product costs and stiffer warranty expenses, despite what the company calls "dramatic improvements" in quality.

Now let's look at GM's performance in North America. It lost money pre-tax too, but a lot less: $292 million vs. $916 million a year ago. Its market share also sank, but again, not as much: from 24.5% a year ago to 24.3% in 2007. Part of that is due to higher fleet sales; GM (Charts, Fortune 500) showed less discipline than Ford and its sales to rental fleets and others rose significantly. Finally, GM benefited too from a richer mix, but it also got a lift from lower warranty costs and reductions in its manufacturing costs.

4 challenges facing the Detroit Three

Looking ahead, Ford has a relatively weak lineup of new or redesigned products for most of 2008. The compact Escort, on which Ford makes little or no profit, won't make much of a dent. The all-new Flex, a crossover that replaces the minivan, will make a larger impact but it won't be huge, at least initially. And while a redone version of Ford's profit engine, the F-series, arrives late in the year, it will face a weak market for pickups and competition from the redesigned Dodge Ram.

General Motors, by comparison, has already launched the Cadillac CTS, the highest-volume model of this high-margin luxury brand, and is about to release the much-heralded Chevy Malibu. GM promises that the Malibu will be more profitable than its predecessor.

While praising Ford's better-than-expected results, analysts have been careful to point out areas where it's falling short. Jonathan Steinmetz of Morgan Stanley wrote that Ford's inability to deliver any cost-related improvements was "a disappointment," adding "This suggests Ford will need to accelerate its cost reduction in...advertising, engineering, material cost and employment related items."

Mark Warnsman of Calyon Securities, part of the Credit Agricole Group, made some sharper comments. "Improvement in North America remains central to the recovery of both companies," he wrote. "And on this metric, General Motors is well ahead."

Which is not to say that GM is cruising. In some biting remarks, Morgan Stanley's Steinmetz pointed out that, while GM has reduced its benefits to hourly labor by $8 billion over the past five years, its pre-tax profits have declined. He noted too that, despite the new models, GM disappointed in the third quarter, its cash burn was worse than expected, and its mix was weakening on some of its new pickups and SUVs.

Still, simple logic dictates that GM has the edge. Rick Wagoner became CEO in 2000 and put together the key members of his management team several years ago. By comparison, Ford CEO Alan Mulally only landed in Dearborn 14 months ago and is still recruiting talent. If he's made any impact on Ford operations so far, it is only on the margin. Several more years will be required before his global product development program can pay off.

Profits, of course, are the final arbiter. While most analysts expect GM to return to black ink next year, Ford isn't expected to turn positive until its promised date of 2009. This may be a road race between two clunkers, but one is still clearly in the lead.

source:

http://money.cnn.com/2007/11/13/autos/gm_f...rtune/index.htm

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Umm...

Ford hasn't produced the Escort in like 8 years. It's hard to take the article seriously, or the opinion as knowledge if this basic error hasn't been corrected.

And "two clunkers" ?!?!?! Seriously..... :rolleyes:

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GM is clearly ahead in the "turnaround." Any industry watcher could tell you that.

Ford agreeably does not have the product pipeline - or the committment to design and build world-class products - that would cause me to purchase Ford stock.

GM, consequently, does not seem to have the initiative that it had a few years ago. I may be going over the edge here, but I am afraid that the company, as a culture, is becoming "comfortable" in its commitment to improving product. IMO, Chrysler experienced this same situation after its early-to-mid-90s product reinvigoration, only to follow it up with marginally improved products in the late 90s to the mid 00s (albeit, one bright spot, the PT Cruiser). While the current GM is churning out some of its best products in decades, I question how long it might last.

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It's simple. GM has a far greater number of promising, competitive, vehicles coming out and has signifigantly repaired the image of a number of it's brands. Look how desirable a Buick can be... even today... when it's done right. I think that even in it's currently weakened state Buick has more brand cache thank Infiniti or Lexus... it's just waiting for vehicles to attach that cache to.

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It's simple. GM has a far greater number of promising, competitive, vehicles coming out and has signifigantly repaired the image of a number of it's brands. Look how desirable a Buick can be... even today... when it's done right. I think that even in it's currently weakened state Buick has more brand cache thank Infiniti or Lexus... it's just waiting for vehicles to attach that cache to.

The question is whether or not a rejuvinated product line can be sold profitably, not the product itself...which is certainly an improvement, but a challenge nontheless.

Until or unless GM can make money making cars---not financing cars or selling off the family jewels--the excellence in their products may be an ironic historical footnote as GM spirals further downward. I firmly believe that a shake-up in the management is not far off---there's no more UAW negotiations to worry about---with the product development team staying and Fritz and the Rickster golden parachuting out the RenCen windows.

As far as Buick goes, I'd say the brand has some life, but Lexus-level cache? Mmmm...Infiniti could be arguable...but its time to check the rose colored glasses on that Lexus comparison (People reject Buick b/c its Buick, a much smaller percentage react to Lexus that way)

GM has rounded the corner, but they may find that next step extraordinarily difficult to take

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Wow... he really did say Escort...

That loss of credibility aside, I don't really see what was his point in writing this article, pitting Ford and GM against one another.

Company-wide, GM and Ford don't even try to compete directly with one another, trucks and pony cars aside. Their energies are directed toward becoming profitable AND beating two of the Japanese Big 3.

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This is a joke right? I didn't read the article (one of the few times I don't) but c'mon. Ford's American operations are a mess. Lincoln is but a shadow of it's former self. It used to be able to compete with Cadillac, now it barely competes with say, Toyota. Mercury is nothing more than badge engineered Fords, and not particularly class leading rebagdes at that...yet they think it's doing great. Ford has excellent products outside of the US market but has no idea how to make use of its global resources. So what do they do? Rename a bunch of vehicles and call it a day. Where's the new V6 for the Fusion? Where's a Focus that doesn't make me want to gouge out my eyes? How about more than 4 speeds in teh F-150? Or maybe side airbags? Or a bigger engine?

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Wow... he really did say Escort...

Interesting..I assume he meant Focus...but the new 2dr Focus does strangely remind me of the early '90s Mazda Protege-based Escorts....
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It's like a big soap opera, with distorted facts and views, and illusions mean as much as solid numbers.

The company who turns around "first" or "fastest" will be just that, not a speculative journey into fudged numbers....

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Loss of credibility can be forgiven here as you have a Mercedes owning banker financer who is not a car guy who knows his maid drives a small Ford Escort. All he knows is sales numbers, finacial numbers and potential sales numbers of car lines he could care less what the name is.

Now to the reality.

Ford only has three real players and they are the Fusion, Mustang and the Truck SUV line. The 500/Tarus is a single when they needed a home run, Lincoln is dying, Mercury will be lucky to be here in 5 years, The new Focus is ugly and unproven, They have no new minivans coming with any promise, even Crown Vic fleet sales are fading.

All Ford has in the short term is a RWD Lincoln that even if it is good may be too late to fight the CTS. The Fairlane that will be popular for about 3-4 years and die off like a Scion. Ford has little leading technology in the Hybrid field that is leading as no Volt like car in the short term.

Ford has just anounced they are 6 years away on world platform cars much in line with what GM is already doing with Saturn, the new G8 and Camaro.

Now the negitives with GM are there like the fact they still have platforms that need revamped, slow truck sales due to fuel cost, a unproven Malibu that will mean a lot to a turn around it all works as hoped, proving quality is on par with Honda and the others and more. The new cars that are coming to Pontiac and Buick are slow but will be the building blocks to bring back each division and give them some new quality product for the empty show rooms.

The only thing Ford has over GM right now is they have less company to turn around. But on the other hand they have less product coming and if one car fails as the 500/Tarus it hurts so much more.

In GM's case It the G8 is a hit great but if it fails it is still selling well in how many other versions around the world? If the Saturn Asta fails here it is still the best selling small car in Europe little risk but much to gain.

The bottom line is GM is moving in the right direction and still has a ways to go. They have the product coming and have learned to make change much faster than in the past. We also have a lot of good Car people driving product now so that means a lot in developing it.

Ford has alway had problems with a Ford at the helm since after the Model T. Henry fought Edsel on the 32 flat head V8, Edsel Ford the first was the only Ford to understand the market but died before he could make a differance. Henry II was a mean ego driven drunk and Bill was way over his head. I don't know if the new managment can save the company with out help.

Something I think will have to give at Ford. Will the Family sell off some of the company? Will Nissan become a partner? I am not sure what is going to happen but they better speed things up on change as they have less time every day and they are not turning the ship fast enough.

New product like in Europe/Austrailia brought here to replace cars like the 500/ Tarus and Crown Vic and others in the line would do them a lot of good as they do have good product but not here. The new Focus should have been the one from Europe vs the racoon faced one they just brought to market.

One look at the new Focus and the new Saturn Astra alone should tell you who is on the right track.

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As far as Buick goes, I'd say the brand has some life, but Lexus-level cache? Mmmm...Infiniti could be arguable...but its time to check the rose colored glasses on that Lexus comparison (People reject Buick b/c its Buick, a much smaller percentage react to Lexus that way)

Look at the rate of people turning in RXes to get Enclaves.

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Look at the rate of people turning in RXes to get Enclaves.

And that proves that some people may be open minded---or truly desire a great product---It doesn't mean that Lexus=Buick, it means Enclave > RX, which isn't that mean a trick to pull off. The RX sells on perceived quality and first mover in a segment volume.

I'm not saying it can't be done, just that the opinion is a minority one.

I'm all for a great Buick line-up....it's a travesty that they've been allowed to fall as far as they have. I'd proudly drive a Lucerne V8, Enclave or LaCrosse Super..I just would not use my own moneys for either of the sedans.

When I think about some of the marketing gaffes like the change in names---LeSabre was far from a damaged name, and the PA, Riv...somebody should have been shot. Unfortunately, they need product even more than better marketing.

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I think will slow down..though only because of money. They have put quite a bit out already, so I expect a slowdown until the current new cars (and trucks) start making money....which explains:

-the fact the Trailblazer will look the exact same until it dies

-the Balt may get a slight refresh, but there will be a delay in the new one (2010)

JUst a few examples of putting the money where they can afford it.....

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Is that a serious question?

Let's see.....

500/Taurus vs. Impala

Focus vs. Cobalt/G5

Ranger vs. Colorado/Canyon

Powerstroke vs. Duramax

I think we KNOW who's doing well and who isn't.

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Looking ahead, Ford has a relatively weak lineup of new or redesigned products for most of 2008. The compact Escort, on which Ford makes little or no profit, won't make much of a dent. The all-new Flex, a crossover that replaces the minivan, will make a larger impact but it won't be huge, at least initially. And while a redone version of Ford's profit engine, the F-series, arrives late in the year, it will face a weak market for pickups and competition from the redesigned Dodge Ram.

What?

MKS, Fusion/Milan/MKZ upgrades/hybrids, Flex, Lincoln Flex, F-150, B-car, and Mustang will all be getting updates / introduced through 2009. I'm not sure on the timelines, but many of this will be introduced in mid-late 2008.

And beyond...2010 Taurus / Sable, 2010 Focus, RWD cars, new Ranger, 2010 Explorer

Ford is doing fine, especially when you look at how much they have cut fleet. Mercury sales are actually starting to increase, Lincoln is way up for the year, and the Ford brand sales losses are finally starting to stabilize now that the old Taurus is out of the picture. GM has not cut fleet sales to the same extent that Ford has, so they have held on to much of their market share. Ford is probably approximately one year behind GM in terms of turnaround progress, but they are beginning to accelerate and will be on a roll in late 2008.

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One could argue that this pissing contest is as a sidebar to the greater question of who has the 'stones', the 'cojones', the 'chimichangas', and the will to go after 'yoda? Ford vs. GM? That's so 1950's already.

Edited by longtooth
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