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Are American carmakers a good buy?

By Greg Guenthner · Bankrate.com
Thursday, May 9, 2013
Posted: 6 pm ET

"There, we said it," proclaims Consumer Reports. "The Tesla Model S outscores every other car in our test ratings."

That’s right. A company that has only been making cars for a couple of years just blew the doors off the stingy reviewers at Consumer Reports.

An American car company ...

One that makes an electric car, no less.

Tesla has recently become the toast of Wall Street. The carmaker saw its shares surge more than 30 percent Thursday as it posted its very first profit, thanks to better-than-expected sales of its Model S sedan.

Tesla claims many of the ingredients necessary to become a Wall Street darling in the making. CEO Elon Musk has already been compared to Apple's Steve Jobs. The company's flagship product is raking in awards and positive reviews. And, perhaps most importantly, Tesla's futuristic luxury sedan captures investors' imaginations.

However, Telsa isn't the only hot car manufacturer in town. Even the old guard in Detroit is showing signs of a turnaround this year.

It's no secret that Detroit's major car manufacturers have been through a lot. Poor reliability, rising gas prices and increased overseas competition led to the "Big Three" automakers losing customers -- and its reputation.

More recently, the 2008 financial crisis nearly took American automakers out of the picture for good. It took a controversial multibillion-dollar government bailout to help keep the reeling auto giants afloat as the economy took a nose dive less than five years ago.

But now, the smoke appears to be clearing. And Detroit's major car manufacturers are showing signs they could be on the verge of an improbable comeback.

"Detroit’s boom-and-bust history was built on a dependence on big, fuel-thirsty vehicles," reports Bloomberg. "Now, with freshly stocked showrooms of new cars and more efficient trucks, U.S. automakers are gaining ground on their Asian competitors with the best lineup in a generation."

For the first time in 20 years, General Motors, Ford and Chrysler all gained market share in the first quarter. That's great news for the Big Three. They're thriving in this low-interest environment, producing better vehicles that consumers want to own.

Ford just voted to double its dividend this week. The stock price is also up more than 11 percent so far this year.

"Ford has delivered four straight years of increased profitability," reports the Detroit Free Press. "North America continues to lead the charge and had a record setting pretax profit of $8.3 billion last year and a 10.4 percent operating margin.”

Not to be outdone, General Motors also reported better-than-expected first quarter earnings. GM shares are up more than 10 percent year to date.

"The auto maker reported profit of $1.18 billion, or 58 cents a share, compared with $1.32 billion, or 60 cents, in the year-earlier quarter," reports The Wall Street Journal. The company also recently announced it plans to build a new Cadillac plant in China.

It looks as if American car companies are trying their best to break free from years of underperformance. It might be time to start taking them seriously once again.

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4 Comments
Coffeeaddict
May 11, 2013 at 10:14 pm

Rich - you are completely wrong! Ford took nothing in the way of bailouts. Wisest move of all! Interesting that they overlooked Chrysler - even though the campaigner in chief GAVE them to Fiat, its still an American car-builder.
Ann- speaking of bondholders - the Chrysler bondholders got wiped out too! Not surprisingly, the Unions made out like bandits (as always) and the taxpayers ate the trash from the balance sheet GM.

rich
May 11, 2013 at 5:17 pm

Ford did take a bail out of 48 billion 8 months prior to the other two large bail outs. That is a fact, also I might add all 3 have paid back the loans with interest.

Dan Beahan
May 11, 2013 at 3:43 pm

One important point: Ford did not take the bailout. They are producing great vehicles. Their truck has been the best selling truck for 31 straight years, and the best selling car in the world is now an american car: the Ford Focus.

Ann Filippi
May 11, 2013 at 1:55 pm

Although GM may be producing some good cars, I never see any comments about the number of former GM bondholders, who lost their money in the government reorganization. They, most likely, will never buy a GM car, no matter how dependable and reliable it is.