Detroit’s car firms try to match Silicon Valley
But for now their stockmarket valuations indicate decline
IT IS fashionable to say that the city of Detroit is on the up after decades of decline. Amid the derelict buildings there are signs of revival; art shops and trendy food trucks abound. But for a truer augury of the city’s possible future, consider the rock-bottom stockmarket valuations of Ford and General Motors (GM), Motor City’s two big domestic car firms. (A third, Chrysler, is owned by Fiat Chrysler Automobiles, whose chairman is a director of The Economist’s parent company.) If you put the members of the S&P 500 index in order of their price-earnings ratios, Ford and GM are at the bottom, among the walking dead.
For their investors, creditors and 426,000 staff, about 18% of whom are in Detroit, it is a terrifying signal. A low price-earnings ratio is the stockmarket’s way of telling you that business as you know it is over. GM and Ford together made $18bn of underlying profit last year but have a market value of $98bn. That ratio implies that their profits will halve or worse, and quickly. Wall Street has got the hots for a younger crowd of firms that investors think will dominate the transport technologies of the 21st century; electric engines, ride-hailing, ride-sharing and driverless cars.
This article appeared in the Business section of the print edition under the headline "My car’s sexier than yours"
Business July 8th 2017
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