by Jim Woods | May 2, 2014 3:34 pm
There’s always a lot of news steering the U.S. auto industry, and this week there were plenty of turns for investors to ponder. The biggest development was from Ford (F) and its announcement of a change in the driver’s seat.
On Thursday, Ford said Alan Mulally would be stepping down and retiring from the CEO position, effective July 1. Mulally’s successor was also announced, and it’s Mark Fields — Ford’s current COO — who has held that position for the past 15 months.
For auto industry observers such as myself, the departure of Mulally wasn’t entirely unexpected. In fact, I thought Mulally was going to be asked to take over the CEO role at Microsoft (MSFT) last year, but the company opted to go with a company insider, instead. Still, the departure of Mulally is somewhat saddening to me, as the Ford chief played a key role steering the company away from bankruptcy and from the need to receive taxpayer bailout money, unlike rivals General Motors (GM) and Chrysler, who felt it was OK to basically fleece the American public to save their own skin.
For Ford shareholders, the smooth transition plans are welcome, and a nice departure form the fierce succession infighting splashed all over the media prior to Mulally’s reign. Now we’ll have to see if Fields can keep Ford’s engine revving the way Mulally has managed to, particularly over the past five years. That will be no small task, as Mulally has steered F shares nearly 180% higher during that time.
Most auto watchers think the first big test of Fields’ stewardship will be the upcoming release of the company’s newly designed F-150 pickup truck. The iconic brand has been the best-selling vehicle in the U.S. for 37 consecutive years, but this fall the truck will undergo big changes, including an all aluminum chassis designed to shed weight and boost fuel economy.
Last month, Ford saw its best April U.S. sales month since 2006, selling 63,387 F-Series trucks. Yet despite the success of the F-Series, overall U.S. vehicle sales slid about 1% in the month, down to 210,355. The decline was fueled by an 8.5% deceleration in passenger car sales and an 11% slowdown in its Lincoln brand. I think Fields will have to shore up the lagging passenger car sales results if he expects to keep Ford shares rolling the way Mulally did.
As for GM, the company had a whole lot of issues that are more troubling than any succession plans. New CEO Mary Barra, fresh off testimony to Congress to try to explain why the company didn’t act faster to recall vehicles with faulty ignition switches, now has the difficult task of keeping GM from running into a PR ditch.
Well, if April sales numbers are any indication of her driving skills, Ms. Barra looks like the CEO version of Mario Andretti.
Despite the horrific publicity early in the month over the faulty switches, GM managed to sell 7% more vehicles in April than it did in the same month a year ago. Demand for the company’s Silverado pickup truck was robust, which helped GM sell a total of 254,076 in April. That metric was a nice surprise for GM shareholders, as the stock is up some 4% just this week.
Unfortunately for GM shareholders, if you’ve held GM stock since it returned to trading in November 2010 you don’t have much to show for it, as you are only up about 2%. I suspect that, in order for GM stock to really get the high-octane fuel necessary for the stock to takeoff, we will have to see a marked improvement in the economy. That rising tide would finally lift GM shareholders’ boats, but it also would likely lift F stock as well. Of course, we aren’t seeing anything close to a marked improvement in the economy, as evidenced by the recent Q1 GDP print showing growth at just 0.1%.
If you’re trying to decide which stock looks like the better buy here, then you have to go with Ford. There are just too many issues (ignition switch litigation being the major one) right now that are likely to keep GM shares from revving up. Still, I wouldn’t turn my back on GM either, as the stock could get back on the road once the legal dust settles, and if CEO Barra can keep steering customers toward GM vehicles.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.
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