There was a time when Motor City represented the core of American manufacturing. The Big Three automakers built most of the cars sold in the United States and provided Detroit with steady blue collar manufacturing jobs. Yet, today the picture is a lot different. Detroit is shrinking in population, tracts of real estate have become virtually worthless, and the city has even been taken over by the state of Michigan as part of a restructuring process.
And in this, all three Detroit automakers have received some sort of government money (yes, Ford Motor Company (NYSE:F) included) at some point over the past few years. Here, I will provide an update on the state of the Big Three today and give investors the opportunity to decide whether they want to invest in the Motor City once again.
Loans, reorganizations, share sales, foreign takeovers, and dividends
The federal bailouts and subsequent restructurings of General Motors Company (NYSE:GM) and Chrysler were as much a political debate as they were investment decisions. Shareholders of the companies were wiped out as General Motors Company (NYSE:GM) was restructured under government ownership (leading to the nickname Government Motors) and Chrysler was restructured and sold to Italian automaker Fiat.
Unlike with many of the loans made to financial companies, the bailout of General Motors Company (NYSE:GM) currently has the federal government well in the red. This is despite a turnaround at GM that has led to positive earnings once again and a share price in the mid $30 range. With another share sale by the Treasury and General Motors Company (NYSE:GM) returning to the S&P 500 after Heinz is leaving, the future of GM’s private shareholders looks brighter than that of taxpayers unlikely to recoup the funds they invested.
Chrysler was another story of an automotive bailout but it was taken over by Fiat in another attempt to rebuild Chrysler into a stable and profitable automaker. Since then, Fiat has been able to refinance the Chrysler debt and has allowed the government to exit its stake in the company with a loss of over $1 billion for taxpayers.
As Chrysler’s majority owner, Fiat has a lot riding on this American automaker both in terms of investment dollars and in expansion potential. After exiting the American market decades ago, Fiat is using its acquisition of Chrysler to introduce new Fiat products into the American market. The Fiat 500 is already here, but many are expecting a new iteration of the Alfa Romeo Spider to return along with other Italian offerings.
Ford Motor Company (NYSE:F) is often given the position of the only automaker not to take government money. However, this statement is only partially true. Ford did not take bailout money or undergo the restructuring process that General Motors Company (NYSE:GM) and Chrysler went through, and the Treasury never took an equity stake in Ford Motor Company (NYSE:F). But, Ford did receive a $5.9 billion Department of Energy loan to revamp production facilities and develop advanced technology vehicles.