Honda V GM Honda Motors

Honda v GM

Honda Motors v General Motors: A Financial Comparison

The past few years have been some of the most voltile in the global automobile industry and market, for a variety of reasons, the spate of safety recalls experienced by Toyota (and over a longer period by other manufacturers, though to a lesser degree) and the massive financial failure of the United States' "Big Three" auto manufacturers (Ford, Chrysler, and General Motors) has, in the eyes of many analysts, fundamentally changed the face of the industry and the capabilities of all of the players involved. It is clear that General Motors met with a high degree of failure, alongside its primary competitors, but the global financial meltdown is not the sole or whole explanation for this company's poor performance. An examination of the current financial statements of this company now that it has begun its recovery might yield some clues as to why its performance lagged in the manner it did, and these reasons become even clearer hen compared to a company that has remained strong and successful throughout these years of industry turmoil and change: Honda Motors.

General Motors has a current ration of 1.17, meaning that there is a very slim margin between the company's current assets and its current liabilities (GM 2011). Honda, on the other hand, has a current ratio of 1.35 and has much larger assets (as well as liabilities) in absolute terms, meaning there is a much bigger cushion between its current assets and its current liabilities (Honda 2011). Though GM is certainly back in the black, its ability to pay its immediate debts is much more suspect than is Honda's, and these variances in financial health are indicators of how the company operates and why GM might be considered the weaker competitor.

On the other hand, the unique position and recent history of General Motors give the company one favorable advantage over Honda in terms of financial metrics: its debt/equity ratio appears to be much more desirable. Until very recently, GM was not being publicly traded; after its bailout by the U.S. government, the company was required to pay down its debt and essentially purchase itself back from the taxpayers before issuing stock. This stock has now been issued, and the debt was very recently paid off, giving the company a current debt/equity ratio of .36 (GM 2011). This means that the company is primarily being financed through the ownership funds of the company rather than through borrowing, which likely means fewer short-term gains but longer financial stability. Honda, on the other hand, has a debt/equity ratio of .71, meaning that a greater percentage of the company's operations are being financed through borrowed funds rather than through ownership funds (Honda 2011). While this might lead to more short-term advantages, it is a less desirable position to be in during volatile economic and industry times.