Caddy shines for GM, but Ford is a better bet

While the revived automaker has its luxury brand gleaming again, the stock remains one to be wary of.

By Jonathan Berr Jun 5, 2013 9:44AM

Less than a decade after being on the precipice of financial ruin, General Motors is back in a big way. Want proof? It's set to rejoin the benchmark S&P 500 stock index after trading closes on Thursday. Plus, North America’s top automaker on Monday reported its strongest May sales since 2008, moving 253,000 vehicles, a gain of 3% on a year-over-year basis.


This was fueled by strong demand for full-size pickup trucks such as the Chevrolet Silverado, which surged 25%, as the housing sector continued to pick up steam. Sales of smaller vehicles such as the Chevy Cruze, Chevy Sonic and Buick Verano climbed 27% in the month. 

 

But May -- and all of 2013 so far -- really belonged to Cadillac.

 

GM’s luxury brand posted phenomenal sales. Over the past five months, they've gained 38% to 69,750, Caddy's biggest year-to-date increase since 1976. That success shows how much the automaker has changed because in those days Cadillac was strictly a U.S. brand. Now, GM plans to triple its sales in China "over the next couple of years," as a company exec told Bloomberg.

 

General Motors Corp. headquarters in Detroit (© Paul Sancya/AP Photo)The revitalized luster of the Cadillac brand continues to attract buyers. According to the news service, 70% of U.S. buyers of the new ATS sedan are purchasing their first Caddy, and 50% are trading in a vehicle from another manufacturer. Buyers also paid an average of 6.1% more for a Cadillac in May, which is good news for GM's bottom line.

 

Still, the time isn't right for investors to buy GM. For one thing, its rivals are also seeing gains in sales in the luxury market. Plus, the U.S. government still owns a sizable interest in the Detroit-based automaker, thanks to the $50 billion government bailout it received.  

 

Officials from the U.S. Treasury have said the government will dispose of its remaining shares by early 2014, which will likely be at a steep loss. Worries about a stock sale of this scale will keep the share price depressed. In fact, the Treasury Department said today that it plans to unload 30 million more shares soon. The Wall Street Journal says Uncle Sam currently holds about 241.7 million GM shares.


GM's top domestic rival, Ford (F) is a better choice here. It's price-to-earnings ratio is cheaper, with the stock trading at a multiple of 10.6 to GM's 12.4. Ford also pays a dividend, which GM doesn't. That should be enough to keep investors steering toward Ford while GM, with some luck and fortitude, builds on it successes such as Cadillac.

Jonathan Berr does not own shares of the listed shares. Follow him on Twitter @jdberr

 

Tags: FGM

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