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Despite record profits, Detroit automakers get no respect on Wall Street

Jun 25, 2016

Credit Daniel Howes / Detroit News

It’s all about the money for some Ford and General Motors shareholders. 

Their money, to be exact.

Doesn’t matter that the Blue Oval booked all-time high North American profits last year, and probably will again this year. Or that GM is making roughly a billion dollars a month selling cars and trucks. Or that both are betting shareholder cash on an emerging mobility space said to be worth more than $5 trillion.

Shares in Ford and GM are stuck, impervious to good news.

They have been for years, despite the turnaround led by superstar Ford CEO Alan Mulally. Or the financial performance of GM. Or the strongest vehicle line ups in just about anyone’s memory.

Wall Street isn’t ready to give Detroit’s automakers the respect that translates into rising share prices. And some shareholders understandably are not happy about it, including one guy whose name is on the building.

Executive Chairman Bill Ford Jr. told shareholders at the annual meeting that he is “frustrated” with the situation. “As someone who owns a lot of stock myself,” Bill Ford said, “I watch it every day.”


He’s not alone. Fellow shareholders say Ford should bring back Mulally … Should replace his successor, Mark Fields … Should reconsider bets in mobility because they “confuse” investors who move markets.

Wrong.

Ford, GM and rival Fiat Chrysler face a new challenge. They survived near-collapse and two bankruptcies. They built the biggest profit-generating machine this town’s auto industry has seen in 50 years. But the convergence of autos and technology is trickier to manage than the traditional business.

The challenge is not going away. Players in the global auto industry must compete in a whole new industry. It’s a high-tech world defined by Silicon Valley culture, faster growth and sky-high valuations – all of which are the antithesis of Detroit.

Standing astride the industry yelling stop won’t slow the techification of the traditional auto industry. It won’t squelch competition from Google or Apple or ambitious start-ups. And it won’t change how technological innovation almost always drives share values higher.

This town’s three automakers still have a credibility problem. Years of rising profits, record sales and lower break-even points are necessary, but they’re not sufficient.

The problem is whether Detroit’s automakers can remain solidly profitable when times get tough and sales slide. It’s whether they can match the innovation, risk-taking and speed of the tech sector — and still produce the cars and trucks that account for most of their revenue and profits.

Companies are in business to make money for their owners, not to employ people and fund pensions.

Companies are in business to make money for their owners, not to employ people and fund pensions.

Without profits and growth, any company’s ability to create jobs, support philanthropy and attract shareholder capital is diminished.

History matters for automakers that have been around for more than a century. They helped put America on wheels. Helped win World War II. Helped create the middle class. And they nearly lost it all to arrogance, entitlement and a refusal to acknowledge foreign competition.

That’s the problem with Detroit auto shares, dear shareholder. It’s called memory.

Daniel Howes is a columnist at The Detroit News. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.