By on April 19, 2010

Since GM has only recently come out with GAAP-approved financials, determining the company’s value isn’t easy. Still, The Detroit Free Press‘s Tom Walsh reckons The General is worth more than Ford, despite the fact that GM recently fell out of the Fortune 500’s top ten (and below Ford) for the first time in its 100+ years of history. What gives?

Lest you think that Walsh is merely trolling for pageviews, and not actually suggesting that the unlisted GM is definitively worth more than the insurgent Blue Oval, consider his distinct lack of equivocation in saying:

strange as it may sound, GM is worth more than Ford

The strangeness of this assertion is beyond question, but whence cometh Walsh’s credulousness of this myth? The short answer is that Walsh has been drinking Steve Rattner’s fuzzy math Kool-Aid. Walsh breaks it down:

The task force pushed GM into bankruptcy last June, wiping out common stockholders and squeezing the holders of $27 billion in GM bond debt into accepting a 10% share of the nebulous value that a future, post-bankruptcy GM might achieve. Bondholders also got warrants to buy more stock in a New GM if its future value exceeds $15 billion, and again if it exceeds $30 billion.

That old bond debt, along with old lawsuits, contracts and other trash, was dumped into Old GM, or Motors Liquidation.

The GM bonds no longer function as traditional interest-earning bonds, but as bets on the future value of an initial public offering of stock in the New GM.

Since GM emerged from bankruptcy, confidence in its survival and possible rebound has grown. Bonds that were trading for a paltry 12 cents on the dollar a year ago rose to around 20 cents in November, and last week traded at about 34 cents.

That trading reflects estimates that GM’s total equity value may be somewhere in the range of $50 billion to $66 billion based on its current cash and debt and projections of future profits. By comparison, the total market value of Ford stock was $45.4 billion, based on Friday’s closing price of $13.43 a share.

On a positive note, at least Walsh had the decency to back away from Rattner’s laughable $90b valuation of GM’s theoretical market cap. Still, as we’ve already discussed, Rattner’s Motors Liquidation analysis is no more predictive of an actual valuation than any other vague analyst’s tool. And $50b-$66b doesn’t exactly speak wonders about the bailout’s effectiveness, considering that GM has received about that much in bailouts, finance-unit support, and loan guarantees from the feds in the last two years. Besides, both GM and Ford will need to part with hefty portions of their cash over the next year or so, as they deal with pension costs and foreign division bailouts (GM) and service debt (Ford).

Ultimately, Walsh might actually just be trolling. At the end of his post, he notes a few “ifs” standing between GM and a bigger market cap than Ford’s:

So, because GM has more cash than Ford (Thanks, taxpayers!) and less debt than Ford because of bankruptcy, GM is worth more than Ford? Yes. Well, maybe:

• If GM can post operating profits of $8 billion this year, as Ford is expected to do.

• If GM can deliver a couple of clean quarters of coherent financial reports, without special charges or bankruptcy-related legal and retiree costs, to build investor confidence before an IPO.

• If Wall Street stays enthusiastic about stocks and IPOs.

• And if the overhang of Uncle Sam’s desire to sell its 61% ownership stake doesn’t unduly depress GM’s future stock price.

These minor quibbles aside, GM is bigger, better and badder than Ford… even if it’s the only company in The Fortune 25 that doesn’t turn a profit (except for bailed-out financial giants Citi and AIG). If Walsh’s dissembling strikes you as weakly-argued and deceptive, get used to it. Until GM pulls of a successful IPO, we can expect a whole lot more in the way of imaginative valuations aimed at pumping up said IPO. When it comes to markets, perception is reality, a fact that GM is more than prepared to exploit.

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17 Comments on “Is GM Worth More Than Ford?...”


  • avatar
    KixStart

    “The task force pushed GM into bankruptcy last June…” – Walsh

    Only in the same sense that astronomers “push” the stars and planets into view.

    A better way to express this would be, “placed giant cushions under GM’s inevitable bankruptcy filing.”

  • avatar
    SkiD666

    Fuzzy math aside, wouldn’t it be logical to assume that since GM and Ford have similar market share their evaluations should be similiar.

    Of course you do have to take into account the fact that Ford is further ahead in recovery (so better cash flow), but bankruptcy sure took care of a lot of GM’s debt (which should equal better long term profits) that Ford still needs to pay back.

  • avatar
    mach1

    Until GM demonstrates over an economic cycle that they aren’t really “Old GM” tarted up with a bunch of taxpayer money, I would rather own Ford. GM had (maybe has)a really bad corporate culture based on internally focused priorities as documented so well by Mr. Farago. I am not convinced that the old culture will steer them over the cliff again.

  • avatar
    porschespeed

    What if Eleanor Roosevelt could fly?

    Walsh works for the Freep. So, not only is he employed in a dying medium, in a dying city, he reports on (mostly) dying companies.

    This cluster of preposterous ‘if’ scenarios is, at most charitable, just another desperate newspaperman trying to put out product that somebody, anybody, will read it.

    On one level, he succeeded.

    Edward has done a more than adequate job of shooting down this paper bag with a birthday candle in it. It would have crashed on it’s own soon enough, but, it’s fun to drag out the pellet gun every now and then.

  • avatar

    “When it comes to markets, perception is reality, a fact that GM is more than prepared to exploit.”

    Ford has been successfully exploiting this for all it’s worth since GM took TARP money. Yet the big problems at Ford still remain just as they do at GM.

    • 0 avatar
      porschespeed

      While I like Ford’s chances better than the other two, you’re right Ford still has issues.

      We can debate whether they are as bad as GM’s, but they are there.

      At the end of the day, Ford did NOT write off a bunch of obligations as the others did. They all still have huge unfunded pension and healthcare liabilities that will likely be foisted off on the taxpayer, either via Treasury or PBGC (which is also grossly underfunded).

      Even though Ford was able to avoid BK on a technical level, from a practical and competitive view, it remains to be seen if that was the right call.

    • 0 avatar
      NulloModo

      While Ford has some issues when it comes to debt, retirement and benefits, and overall union problems, they have one thing figured out that GM and Chrysler still don’t – product.

      Whatever you may think about it personally, the Fusion is very highly regarded in all of the mainstream auto press, as well as in less enthusiast centered publications like Consumer Reports and JD Power. A lot of people see it as the only real domestic alternative to a Camry or Accord. The F150 is still the best truck on the market as it has been for over 30 years, and with the upcoming Fiesta and 2012 Euro Focus Ford’s small car lineup will be just as good, if not better, than current market leaders Honda and Toyota.

      Now, GM has some solid products in the lineup, and their new stuff is very nice, but no one seems to be paying much attention. Ford was able to write its own headlines by staying free of the bailout. Ford was able to push the quality of the vehicles as a big reason they didn’t need government money, and it has paid off. GM, regardless of how good some of the cars might be, is still in the headlines for having gone bankrupt.

    • 0 avatar
      porschespeed

      NulloModo,

      I agree, Ford has *overall* the best product mix. IF that continues to yield profitable sales, then Ford may pull it off.

      I’m also with you that the PR value of not having declared BK is much more than most of us would believe.

    • 0 avatar
      BDB

      I agree about product mix.

      GM’s new stuff is nice, sometimes even class-leading, sure, but it’s spread out TOO THINLY even among their “core” brands.

      With Chevy, there’s the Malibu, the Equinox, the Traverse, and of course the trucks. But there’s also the Cobalt, the Impala, the Aveo. They latter are long in the tooth and stale, just barely competitive.

      Buick? The LaCrosse is nice, and so is the Enclave, but they’ve still got the Lucerne.

      Caddy? Again, CTS is good, and the Escalade is the Escalade, but the DTS and STS are jokes. The SRX should have gone to Buick.

      Only GMC has a full range of competitive products, and surprise surprise, this is their SUV/truck division.

      Ford focused on one core brand, and it seems to have worked so far.

  • avatar
    Zasdoogy

    @ducatordan: I did the same thing… it still doesn’t make any sense… but, that’s good ol’ GM: doing something that never makes any sense, even when it’s pointed out as the OBVIOUS not to do so…

    So the cog turns…

  • avatar
    Dimwit

    I don’t buy it. GM hasn’t proved a thing in the last 2 years that spells anything like a turnaround. Their product mix is shakey at best, they still haven’t divested themselves of all the deadweight, and there’s legal issues lingering. Upper mgmt and the Board of Bystanders seem to be talking with their fingers crossed behind their backs, hoping that a recovering economy will lift all boats.

    I think the market has them just where they deserve.

  • avatar
    folkdancer

    Would anyone be willing to buy GM today? I mean the whole operation, all the factories, inventory, and obligations? And I mean without going through a bankruptcy to buy GM as scrap metal.

    Yes, I know that GM is hoping to have a stock sale soon to establish a yardstick to their worth but I doubt anyone would buy all of GM today.

    Therefore GM shouldn’t even be listed on Fortune’s list. Isn’t its value below zero?

  • avatar
    Telegraph Road

    “And $50b-$66b doesn’t exactly speak wonders about the bailout’s effectiveness, considering that GM has received about that much in bailouts, finance-unit support, and loan guarantees from the feds in the last two years.”

    TARP funds allocated to GMAC, a separate and independent company, will have only a minor contribution to GM’s future market capitalization.

  • avatar
    baggins

    FYI- Financials are not “GAAP” approved. There is no organization called GAAP. Financials are prepared in accordance with Generally Accepted Accounting Principles (GAAP)

    Cue a bunch of posts of people saying “who cares” “I am glad I am not an accountant”. I regard these posters as simpletons.

    The important point is NOT the meaning of GAAP, but rather, if one is going to write professionally about something and use an acronym, one ought to know what it means. A fundamental error like this makes the writer look out of his depth.

    • 0 avatar
      ivyinvestor

      Here, here, Baggins.

      I also wince when reading article comments relating to “cash flows”, “evaluation” (sic), and “buying shares” from the lay perspective. While I believe more folks should certainly educate themselves with respect to (personal) finance, they might wish to do so before clicking “Reply”, as they are otherwise contributing to the misunderstanding of others.

      After all – even the title of this release “Is GM Worth More than Ford?” is misleading, from a comparison perspective. I’ve modeled IPOs before – and any others with financial experience who’ve done so will note that the information given above – all that lay readers have, with their morning java – is not even a start.

  • avatar
    Pig_Iron

    GM say ‘hi’ to Chrysler for me when you arrive in the 5 digit range on that chart.

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