Ford to Buy GM? It’s Not As Crazy as You Might Think…

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Apr 10th, 2009 | By | Category: Featured, Penny stocks
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Who would’ve thought just a few years back that the two biggest U.S. automakers would be in penny stock territory? As of this writing both Ford and General Motors trade under $3 – a far cry from the double-digit share prices both stocks traded at just a couple short years ago.

There’s no question that Ford is best in breed right now when it comes to U.S. automotive stocks.

Unlike GM and Chrysler, Ford hasn’t needed to turn to Uncle Sam for the cash to stay afloat. The company stated in its last earnings release that, “Based on current planning assumptions, Ford has sufficient automotive liquidity to fund its business plan and product investments and does not need a bridge loan from the U.S. government.”

Ford, the No. 4 worldwide automaker by sales, sits in stark contrast to GM, the No. 2. At present, the chances of GM facing a bankruptcy are more likely than not. The current administration has made it clear that failure isn’t an option for GM – the company employs a quarter million people and generates around $150 billion in revenues each year. Still, if GM finds itself unable to turn things around, who’s going to take responsibility for the flailing giant?

How about Ford…

Right now, Ford’s sitting on $52 billion in cash and short-term investments… more than enough to cover GM’s current $1.3 billion price tag. But it’s not Ford’s ability to buy GM that would make the deal happen. Ford has enough troubles of its own to worry about. The company may be best in breed, but they’re best in a crappy breed.

What could catalyze this deal is Uncle Sam. The government’s insistence on helping GM survive could mean a sweeter pot for Ford in exchange for dealing with their cross-town competitor, just like the downpour of Federal money Bank of America got to cope with Merrill Lynch.

There are a lot of reasons why a merger between Ford and GM are a bad idea. Besides the obvious issues of anti-trust and the blind leading the blind, the potential for GM to take Ford down with it is a big risk for both companies. Still, if the money materializes, it could be a great opportunity for Ford to take a foothold on the auto industry.

Cheers,
Jonas Elmerraji

April 10, 2009


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Jonas Elmerraji

Jonas Elmerraji, CMT, is the co-editor of STORM Signals and Penny Stock Fortunes, and a contributor to Agora Financial’s Trend Playbook. Jonas got his start on the fundamental side of the market, poring over financial statements and valuations to find sound investments – today, he specializes in blending fundamental and technical analysis. Jonas is a senior contributor to TheStreet.com, and has been featured as an investment expert in Forbes, Investors Business Daily, and CNBC.com among others. 

Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

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2 comments
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  1. Purchased some FOMOCO.a few months ago so far so good. This F/GM talk scares me to death.
    Curtiss and Wright were slamed together & when was the last Curtiss-Wright airplane rolled the
    assembly line, WWII? May take something similar to make this merger fly!!

  2. If Ford is not in the trouble that the other car companys are in…I believe that they ought to stay away from the companys that can’t seem to control there own stores..

    Then they need to watch what they do and keep there company solvent.

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