General Motors (GM) has had a rough few months, stemming largely from faulty ignition switches that cost the company about $1.3 billion — and a lot of goodwill. GM stock is down about 12% year-to-date as a result.
On the other hand, top competitor Ford (F) has been doing great. Shares of Ford stock are up by double digits in 2014 to outperform the S&P 500 by a wide margin since January, and the automaker just posted strong earnings results on brisk sales.
Ford earnings are the latest proof that F stock is clearly kicking GM’s tail — at least according to investors over the past few months.
And here’s why General Motors stock is going to continue to play second fiddle to Ford stock for some time:
GM Recalls Woes Continue: To combat perceptions it swept the ignition switch debacle under the rug, GM has been getting very serious about recalls. That has led to almost 30 million vehicles in 2014 alone! Unfortunately, that puts GM stock in a lose-lose situation: either recall everything to rebuild trust with consumers and regulators, or sit on your hands and risk being found out and further labelled as obstructionist. In fact, General Motors just recalled another 720,000 or so vehicles this week! The expense in both real dollars and brand tarnish is sure to continue given this scenario.
Ford Management Is Superior: If you’ll recall — er, remember — Ford was the only major domestic automaker that didn’t declare bankruptcy in 2009. Its balance sheet is much more attractive as a result, and Ford just recorded its 20th consecutive quarter of profits. Sure, GM is profitable too … but only recently got out from under government ownership. Meanwhile, its new CEO is running around on Capitol Hill answering recall questions instead of leading the company forward. Ford, on the other hand, navigated the crisis on its own and recently had a smooth handoff in leadership from longtime CEO Alan Mulally to Mark Fields.
Ford Stock Up in a Tough Market: Most impressively, investors had reason to be a bit pessimistic about Q2 Ford earnings results given the weight of winter weather in the first quarter and the fact that Ford’s redesigned pickup lines juiced profits in 2013 but are now old news. Despite these factors, Ford earnings beat estimates — showing that at least one automaker doesn’t need excuses to defend itself against bearish sentiment. Ford lets the numbers speak for themselves.
When you throw in the fact that Ford’s Q2 pretax profits of $2.6 billion marked its best quarter since 2011, there is even more reason to like Ford over GM stock right now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.