With online stock trading, you could easily be drawn with the flow of the stock market. But experience tells you to go against the flow and look at stocks in terms of their future potential.

Are General Motors ($GM) and Ford Motor ($F) being underestimated by investors and the stock market? On the face of it, you can’t blame them for it.

Ford and GM Laying off Jobs

Ford has cut jobs, with 7,000 positions eliminated and accounting for around 10% of the white-collar jobs. There have been 900 layoffs in recent days alone. General Motors ($GM) has been following the same course, with many white-collar layoffs. The ultimate goal of the job cuts is to generate significant savings, to the tune of billions of dollars in the coming few years.

As a result of these measures, GM’s shares trade for only around five times its projected 2019 earnings. Ford is trading seven times its forward earnings. In any case, there’s no denying that investors are fearful of various trends, such as self-driving vehicles, electric mobility and ridesharing, which could hamper profit growth for these conventional auto companies. But Motley Fool analyst Adam Levine-Weinberg estimates that both these auto majors are in line for exceeding investor expectations.

Ford Cutting White-collar Jobs, GM Planning Factory Closures

Ford has only been cutting white-collar jobs, but has avoided that trend in its factory jobs in North America. That’s because it has been coming up with new models to replace those it stops. Internationally, Ford is estimating $11 billion in terms of restructuring charges.

GM intends to close down five of its plants in North America as 2019 ends, as part of its cost-cutting measures. Around 6300 workers would be displaced here, but many of them are being shifted to other facilities. 15% of the company’s salaried workforce in North America has also been cut, which amounts to 8100 positions. Ford has avoided such extreme measures, particularly laying off factory workers, though it is significantly cutting white-collar positions.

Moves That Can Only Make the Companies Stronger

But Levine-Weinberg differentiates these moves from those made 10 years back when there was a widespread plunge in demand in the auto sector. Both GM and Ford were forced to carry out mass cutbacks, even cutting on R&D spending. This time these car companies are profitable and are just preparing themselves for any further destruction. They may not be making as much profits as they’d have preferred, but they certainly are doing reasonably well.

Levine-Weinberg reckons that these cost cuts can make these companies stronger since they’re aimed at streamlining their functioning by speeding up decision making. With the reduction in white-collar positions, bureaucratic layers are reduced, ensuring greater streamlining.

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