Running an American car manufacturing company is not easy. But for the most part, General Motors and Ford's executive teams are cruising pretty nicely in the midst of the recent financial crisis.
These days, a lot of experts are saying that the U.S. auto manufacturers are making a soaring comeback. SUV and pickup sales are booming. Chrysler, Fiat, GM, and Ford are all reporting profits for the last quarter. Ford and GM are showing exceptionally solid balance sheets.
On the other hand, Wall Street is ambivalent about GM and Ford's recovery. While the FCA stock soared by 40% over the last years, Ford's stock still continues to decline. For GM, stock prices are basically flatlined.
The situation with Ford and GM is reaching critical levels as the auto industry is preparing for the downturn of sales on the horizon.
David Einhorn from Greenlight Capital wants to use the firm’s share of GM to undertake an unusual dual-share plan. The plan is to split GM's stock into growth shares and dividend-paying shares. Under the current structure, GM already spent billions of dollars to buy back the company's share in an effort to raise the stock prices. Despite that, GM's stocks are not moving significantly. In addition to that, GM is paying stock shareholders dividends that offer nearly 5% yield. However, Einhorn still thinks that GM's market cap could double compared to what it is now.
GM rejected Einhorn's plans stating that it would create a plethora of problems including undermining the company's investment-grade credit rating and management conflicts.
Einhorn then accused GM of distorting his proposal to the rating agencies. As of the moment, a company standoff is happening, and tensions will continue to grow until next month's shareholder meeting. Einhorn is reported to nominate three new directors for GM's board.
Meanwhile, at Ford, CEO Mark Fields is feeling the heat before the company's meeting.
According to a report by Keith Naughton of Bloomberg, Ford's board scheduled an extra time for the next shareholders meeting. The purpose of the extra time is to ask Field about his strategy and what his plans are regarding the continuous drop of Ford's stock prices.
Ford's stock prices have dropped by 35% since Fields took the CEO position in July 2014. Investors are largely indifferent to Fields. Rumors are coming out that the investors are planning to divert the money to new technologies and startups.
Then, there is the pullback of Ford stock prices in the first quarter of 2017, an event that is not helping Fields’ position.
Objectively, Ford didn't have a bad quarter. It's just that the company didn't create as much profit last quarter when compared to the same quarter of the previous year. Ford is still expecting sales of 17 million for 2017. Ford's mix of pickups and SUVs should keep the company profitable until the end of the year.
On the other hand, Wall Street investors and analysts are starting to get nervous about the overall direction of the market as the recent stock surge may only be smoke with no real fire.