Ford Motor Company (F), General Motors Company (GM): It’s Time to Buy America’s “Big 3”

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Home to the Bad Boys, Smokey Robinson, and the 11-time Stanley Cup Champion Redwings, Detroit will always be famous for one thing: cars. For years, the dominance of the “Big 3” — Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM), and Chrysler—helped power a Midwestern city with little else to its economic name.

Ford Motor Company (NYSE:F)Of course, the 2008 crisis highlighted how much the times have changed, but an impressive recovery has put all three companies back in the national conversation. Now, especially as automakers fall victim to macro concerns, it looks like a time to buy the Big 3 again.

Promising play

The company opened a $500 million plant in China earlier this month, doubling production capacity in an effort to keep up with rapid demand. In May, Ford Motor Company (NYSE:F) sold 70,540 vehicles in China, an increase of 45% against the previous year—three times the rate of the company’s domestic growth. Asia currently sits at nearly 20% of Ford Motor Company (NYSE:F)’s market, so doubling production in China could help Ford Motor Company (NYSE:F) to sustain that impressive growth.

A recent string of recalls brought the question of quality back to mind, at least in North America, which is a concern given that the continent amounts for almost half of Ford Motor Company (NYSE:F)’s sales. But the U.S. still saw 14% year-over-year growth in May; quality is a currently a concern, not an issue. What’s more, Ford Motor Company (NYSE:F) trades at just over 10 times earnings, much less than the industry average of 14.5 or the S&P 500 average of 16.9. Ford’s 2% dividend (nearly twice the industry average), makes it look even more promising.

Making progress

General Motors Company (NYSE:GM) is better than Ford at almost everything, except for one, key component: making money. Even though its current operating margin of almost -20% is exaggerated because of deprecation costs in Q4 2012, the company’s 2011 mark of almost 3% needs improvement. Last week, the company highlighted enormous progress in its plans to do just that. General Motors Company (NYSE:GM) now hopes that 96% of volume will be on 13 core architectures, and already has reached 71% volume on those architectures against just 31% in 2011.

In other words, General Motors Company (NYSE:GM) will cut costs by condensing its sales into a few, profitable product lines, thus allowing the company to capitalize on “economy of scale.” Like Ford, General Motors Company (NYSE:GM)’s P/E looks better than the industry average (8.0 against 14.2), and while it does not offer a dividend, General Motors Company (NYSE:GM) also boasts an EPS of over 3 (trailing-12 months of 4.2), which suggests that the company will eventually generate income to investors regardless of when—or if—it instigates a dividend.

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