Municipal Bond Forum
GM vs. Ford
Q
Do you see a difference between GM and Ford bonds in terms of company viability?
A
James A. Klotz responds:
As you know, both GM and Ford have been actively restructuring their automobile businesses to be more competitive and return to profitability in a global marketplace. Both companies have followed similar paths, seeking to raise cash through the closing of unneeded plants, reductions in personnel and related costs, and developing more attractive products to attract consumers.
To date, GM has seen its financial and operational prospects begin to stabilize and GM is expected to report a profit for the last quarter of 2006. Ford has hired a new CEO who is revamping the company’s culture and manufacturing process to create economies of scale and reduce costs. At this point, GM appears further along in its attempts to regain profitability. Ford, on the other hand, seems to be responding to its new CEO’s approach. Both companies have substantial cash and access to outside funding to execute their turnaround strategies.
We believe both companies are making strong efforts to “re-engineer” themselves to be smaller, more nimble competitors in an automobile market that promises to be far different in the future than it was in the past. Both companies have strong brand names, a base of loyal customers, and a substantial presence in the world marketplace that should continue to ensure their viability for the long term. Ford may have had recent difficulties in this country, yet it still reported fourth quarter 2006 profitable results in both Latin America and Europe.
In summary, both Ford and GM are undergoing fundamental reorganizations that will allow them to be competitive with not just each other, but global manufacturers both at home and abroad. This process is difficult at best and it will take several years to gauge success. In the end, we expect both companies will survive their current troubles but will likely be smaller yet still important players in their industry.
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