U.S. Auto Stocks General Motors (GM) and Ford (F) Diverge on Capital Efficiency

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The two most prominent Detroit-based automakers, Ford Motor (F) and General Motors (GM), are exposed to the same industry trends, yet they’ve experienced notably different stock performances over the past twelve months. Ford suffered chronic losses while GM was basking in bountiful gains.

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Comparison Results between Ford and General Motors
Comparison Results between Ford and General Motors
Comparison Results between Ford and General Motors
Price comparison showing how divergence between F and GM began in mid-2024

The auto industry is known for its high cyclicality and capital-intensive nature, requiring companies to effectively navigate macroeconomic fluctuations. Ultimately, those consistently converting capital into earnings tend to come out on top.

To determine the better investment, this analysis examines both companies more closely from the perspectives of capital efficiency and current valuations, leading to a bullish outlook on GM and a neutral stance on Ford.

Ford vs. GM Through a Capital Allocation Lens

Several vital factors merit consideration when evaluating whether Ford or General Motors presents a more compelling valuation and stronger return on capital, particularly within the inherently cyclical automotive industry.

The automotive sector is highly capital-intensive, requiring substantial investment in manufacturing infrastructure, research and development, and distribution networks. As a result, the efficiency with which companies allocate and utilize capital is a critical measure of performance.

Consider Ford as an example. In 2024, the company reported an operating profit of $5.2 billion, largely unchanged from the $5.3 billion it earned in 2023. Over the same period, its invested capital—which includes net tangible assets and working capital—declined modestly to $60.5 billion from $63.6 billion. Based on these figures, Ford achieved a return on invested capital (ROIC) of 8.6% in 2024, consistent with the 8.5% it posted the previous year.

Ford Motor (F) balance sheet showing assets, liabilities and debt-to-assets
Ford Motor (F) balance sheet showing assets, liabilities and debt-to-assets

Taking a broader view, Ford’s performance has demonstrated notable volatility in recent years. For instance, the company reported a $4.1 billion operating loss in 2020 amid the pandemic, followed by a strong recovery, reaching $8 billion in operating profit by 2022. Over the past five years, this translates to an average return on invested capital (ROIC) of approximately 7%. Excluding the impact of 2020, that figure improves to a range of 8.5% to 13%. Nonetheless, the data reflect a pattern of inconsistency in capital returns.

In contrast, General Motors has shown more robust and stable growth. In 2024, GM reported a substantial increase in operating profit, reaching $12.7 billion, up significantly from $9.6 billion in 2023. Its invested capital also rose to $65.1 billion from $58.4 billion, driven primarily by increased working capital. Notably, reducing inventories suggests improved operational efficiency, as GM effectively converted excess stock into stronger sales and higher operating margins.