GM is far ahead of Ford in China and is already a dominant market player. Ford is determined to catch up and has plans to double its market share by launching 15 new models by mid-decade. Both companies look to significantly grow revenues through China because their models are very popular with the Chinese consumer, who typically avoids domestic brands due to poor quality and design.
Both companies are also in position to take advantage of an idea that could revolutionize the automotive industry. Developing connected vehicles could bring in an entirely new stream of reoccurring revenue that has the potential to boost margins to heights not seen in the auto industry.
Ford also offers a dividend of $0.40 annually that I believe will be increased around mid-decade. As the U.S. Treasury continues to sell off its shares of GM, it will present an opportunity for General Motors Company (NYSE:GM) to initiate a dividend that could attract a new type of investor – income investors.
Issues to watch
Although the next few years look to tell a great story for investments in Ford and GM, there are some issues that both must watch out for. As profits continue to improve, union contract negotiations are likely to heat up in 2015. It will be up to management to create a valuable, yet affordable, offer and convince the workers that it’s in both parties’ best interests – a tough objective, to be sure.
Another issue to watch for both Ford and GM is pension obligations. Ford plans to pay in billions more than required in order to take hold of the issue as soon as possible; when interest rates begin to rise, it will drastically reduce the billions in pension obligations.
Bottom line
At the end of the day, both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) are completely different and drastically improved companies than they were a decade ago. For the first time in nearly 20 years every Detroit automaker gained market share in the first quarter. This isn’t a fluke; the automakers are producing valuable and popular vehicles that are attracting and helping to retain more consumers.
In addition to better products, the automakers have drastically reduced their break-even point. It’s estimated that Detroit automakers can break even in the U.S. at a SAAR level of about 10 million vehicles – a night and day improvement from even five years ago. The future looks bright; I swung for the fences with Ford and GM and plan to enjoy the hit.
The article 2 Overlooked Investment Opportunities originally appeared on Fool.com and is written by Daniel Miller.
Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
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