Are America's Car Companies for Sale?

Douglas A. McIntyre

Little known but huge China truck maker Great Wall Motors may bid for Fiat Chrysler Automobile N.V.’s (NYSE: FCAU) Jeep brand. Since the price would be in the tens of billions of dollars, the values of America’s two other car companies, Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) are low enough that they could become M&A targets for rich vehicle manufacturers based outside the United States.

Morgan Stanley speculated Jeep’s value would be well above Fiat Chrysler’s market cap. The means an implied value well above $20 billion for a single car brand. If Jeep is sold, Fiat Chrysler becomes a much smaller company. Without Jeep, its most viable future may be to auction off its other brands, which include Fiat, a very popular brand in Europe, as well as Dodge, Chrysler and pickup operation Ran. Ram sells the third most popular vehicle in America, which is its full-sized pickup.

Investors were recently reminded how cheap GM and Ford stock prices are, at least relative to several rivals. Tiny Tesla Inc. (NASDAQ: TSLA) posted a market cap larger than Ford’s and GM’s. Tesla’s market cap today is $56 billion, compared to Ford’s at $42 billion and GM’s at $51 billion.

The argument for low valuations for GM and Ford is that they are stuck in the age of gasoline-powered engines driven by real people while the world of cars moves to electric-powered autonomous vehicles. If this is true, the interest in Jeep is odd because its appeal is almost exclusively to the rough and tumble, gas-powered, low gas mileage, “drive it yourself” car.

It is worth a look at Toyota Motor Corp. (NYSE: TM) to see what a traditional car company can be worth. While its sales are not much larger than GM’s worldwide, its market cap is $164 billion. While GM and Ford have stock prices that scrape near recent lows, Toyota’s shares trade near a 52-week high. Experts would argue Toyota is a better run company than the other two, makes better cars and trucks, is more profitable and has a better balance sheet based on debt load.

Ford and GM are up against Wall Street’s opinion that they will be beaten out of the car business over time and forced to shrink to the point where the economies of scale for production, R&D and marketing they have enjoyed for so many decades no longer apply. However, over the short term, those advantages persist. Potential buyers who believe in a gas-engine future may think at current prices, GM and Ford are on sale.