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

Jonas Elmerraji

Jonas Elmerraji is an editor of Penny Stock Fortunes and a frequent contributor the Penny Sleuth. Jonas also occasionally writes for financial publications like Forbes, TheStreet.com, and Investopedia. He has been quoted as an investment expert in Investor’s Business Daily, Consumers Digest, and Bankrate.com among others. Before joining Agora Financial, Jonas’s held positions at an investment firm and at a “Big 4″ public accounting firm. He holds a degree in Financial Economics.

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