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It’s been a rough year for GM — yet Ford is the one struggling

Rick Newman
Senior Columnist
General Motors CEO Mary Barra is sworn in to testify before a House Energy and Commerce Oversight and Investigations Subcommittee hearing on the GM ignition switch recall on Capitol Hill in Washington June 18, 2014. REUTERS/Jonathan Ernst

Six months ago 2014 was looking like a washout for General Motors (GM). A safety defect involving faulty ignition switches was mushrooming into a huge recall affecting 2.6 million vehicles, now linked to at least 23 deaths. Instead of finally putting the 2009 bankruptcy filing and government bailout behind it, GM seemed likely to veer into fresh obstacles on a rutted road to recovery.

Yet GM keeps ringing up impressive sales, defying predictions of yet another stall. Crosstown rival Ford (F), meanwhile, is shaping up as the surprise loser of 2014. GM sales in September surged by 19.4% over 2013 levels, with sales for the year up 4.3%. Ford’s September sales, by contrast, dropped by 2.7%, with year-to-date sales down 0.5%. GM's stock rose on a down day for the markets; Ford's stock fell.

Overall auto sales were up by about 19% in August, which means GM captured its fair share of a surge that is one of the few unmistakable bright spots in the whole economy. “GM is amazing,” says George Magliano of forecasting firm IHS Automotive. “There seems to be no impact from the recalls at all. Basically, the consumer seems to have taken it all in stride.”

What's helping GM

Several intangible factors may be helping GM. Virtually all the most troubling recalls have involved cars built by the “old GM,” before bankruptcy, and auto buyers may feel the new GM is a different and better company. GM’s worst critics were so disgusted by the 2009 federal bailout of the company that they swore never to buy from them again. Everybody else may feel more forgiving toward the company, even after revelations of oversights and snafus that directly harmed GM customers.

GM did suffer some reputational damage during an ongoing series of recalls, which have totaled a whopping 29.3 million vehicles so far in 2014, most of them old problems GM discovered as it reviewed years of safety and quality issues. But the damage appears to have been far less severe than Toyota’s troubles during a 2010 safety crisis, according to polling by YouGov BrandIndex. GM also enjoys the highest brand loyalty of any mass-market automaker, according to YouGov, a sharp turnabout for a firm that not long ago drove away its own customers with shoddy vehicles and lousy service.

GM’s vehicle lineup is a more tangible sign of the automaker’s durability. Instead of the mustn’t-have vehicles of a decade ago, GM now offers strong models in nearly every important category. “There is a clear difference in the quality and performance of the latest models to emerge from post-bankruptcy GM compared to those sold even just five years ago,” Consumer Reports wrote recently. One sign of GM’s new appeal is strong sales of small cars such as the Chevy Cruze, Sonic and Spark, all up between 6% and 12% in September. Small cars had been an afterthought at GM until about 2010, leaving the automaker overdependent on big vehicles and highly vulnerable to gas-price spikes that drove buyers to smaller cars — usually built by somebody else.

GM has set aside $2.5 billion to account for total recall costs this year, with analysts estimating the highest possible cost at around $7 billion. That has helped push GM shares down about 20% this year. But Ford, not GM, has been the poster stock during the past week, with its share price down 11%, compared with a 3% drop for GM and a 2% decline for the market overall. That slump came after Ford downgraded its profit outlook through 2015 by $1 billion to $2 billion per year.

Ford is in the midst of several major product changeovers, including the F-150 pickup truck, with the 2014 model being phased out and the 2015 model due around the end of the year. Product changeovers typically involve plant retooling and lost sales, as assembly lines slow or stop and buyers decide to wait for the new model. The F-150 relaunch may involve more disruption than usual, because the new truck’s heavy reliance on aluminum components requires more-extensive changes at the factory. Even though Ford has built up F-150 inventories, sales fell by 1% in August, which was otherwise a big month for trucks — especially those built by top competitors Chevy and Ram.

Ford has also been stung by recalls, though none as dramatic as those involving deaths in GM vehicles. Recall costs were one reason Ford lowered its profit outlook recently. The No. 2 U.S. automaker has also tried a new strategy with a few other models that hasn’t panned out — spiffing up the interiors on vehicles such as the Fiesta and Focus compacts and pricing them higher than competitors. Sales have dropped. Despite strong sales of its Fusion sedan, overall sales of Ford passenger cars were down 5.5% in August.

Ford may be paving the way for a triumphant “rebound” next year as new CEO Mark Fields, who took the job in July, gets his footing. “The profit revisions are a way for Fields to have kind of a soft landing,” says analyst Dave Sullivan of forecasting firm AutoPacific. “It’s a lot easier to do this now than next year. It’s always easier to come up from the bottom.” If he’s right, Ford could be the surprise winner in 2015 -- if General Motors doesn’t beat them to it.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.