Reassessing Exposure in the Auto Sector Amid Disproportionate Gains in GM and Ford

The automotive sector's post-recovery phase from 2023 to 2025 has been defined by divergent trajectories among major players. General Motors (GM) and Ford (F) stand out as case studies in strategic adaptation, with their contrasting performances offering critical insights for investors reassessing sector exposure. While Ford has surged ahead in the short term, GM's long-term fundamentals suggest resilience amid macroeconomic headwinds. This analysis explores how investors can balance these dynamics to optimize returns in a sector reshaped by electrification, tariffs, and shifting consumer preferences.

GM and Ford: Divergent Paths in a Fragmented Market

Ford's 20.45% stock gain in 2025 outperformed the S&P 500, driven by its focus on trucks and SUVs and a disciplined approach to EV production, according to a Nasdaq article. However, its forward earnings multiple of 9.5X lags the industry average of 12X, reflecting skepticism about near-term profitability. Earnings per share (EPS) are projected to decline 38% in FY25 to $1.14 before rebounding 13% in FY26. This volatility underscores Ford's reliance on cyclical demand for its core ICE (internal combustion engine) models, particularly the F-150 and Maverick hybrids, cited in a KPMG update.

GM, by contrast, has posted a 100% five-year stock return, outpacing Ford's 65% growth. Its Q2 2025 sales of $47.12 billion exceeded expectations, though a $1.1 billion tariff burden weighed on margins. GM's forward P/E of 5.5X is even more attractive, but its FY25 EPS is forecast to drop 11% before stabilizing in FY26. The company's balance sheet strength and diversified product line-spanning EVs, hybrids, and profitable ICE models-position it as a safer long-term bet, according to an RCFact piece.

Dividend yields further differentiate the two: Ford's 5.52% yield appeals to income-focused investors, while GM's 1.15% aligns with the S&P 500 average. This disparity reflects Ford's aggressive capital return strategy, albeit at the expense of reinvestment in high-growth areas like software-defined vehicles (SDVs).

Broader Sector Trends: Electrification, Tariffs, and Global Competition

The auto sector is navigating a triple threat: shifting to electrification, absorbing tariff costs, and competing with Chinese automakers. While EV adoption remains slower than anticipated due to range anxiety and charging infrastructure gaps, hybrids are emerging as a pragmatic bridge (KPMG). Ford's hybrid expansion and GM's 2027 plug-in hybrid reintroduction signal a sector-wide pivot (KPMG).

Chinese automakers, meanwhile, are capturing global market share with cost-effective EVs and advanced battery technology, according to a PwC analysis. This pressure forces traditional OEMs to accelerate innovation or risk obsolescence. Software-defined vehicles, which enable over-the-air updates and monetizable features, are becoming a key battleground (KPMG). GM's investment in its Ultium platform and Ford's Argo AI partnership highlight their efforts to stay competitive (RCFact).

Macroeconomic Headwinds: Tariffs and Interest Rates

The 25% U.S. tariffs on imported vehicles and parts have inflated new car prices by $6,400 on average, with a 0.3-0.4% overall price-level increase. These tariffs act as regressive taxes, disproportionately affecting lower-income households and reducing disposable income by 1.3% for the second income decile under full retaliation scenarios. Analysts estimate annual industry-wide cost increases of $100-160 billion, prompting supply chain reallocations and production shifts to the U.S., as noted in a Tagore analysis.

High interest rates-7.6% for 48-month new auto loans and 10-15% for used cars as of mid-2025-further dampen demand (RCFact). These pressures are expected to reduce North American light-vehicle sales by 10% over several years if tariffs become permanent (KPMG).

Strategic Reallocation: Balancing Short-Term Gains and Long-Term Stability

For investors, the key lies in aligning exposure with risk tolerance and time horizons. Ford's high dividend yield and short-term growth in ICE models make it attractive for income-focused portfolios or those betting on a hybrid-driven rebound. However, its valuation discounts future risks, including regulatory shifts toward EVs and Chinese competition.

GM's stronger balance sheet, diversified product mix, and long-term strategic clarity make it a better fit for conservative, long-term investors. Its 5.5X forward P/E suggests undervaluation, particularly if tariffs ease or EV adoption accelerates.

Sector reallocation should also consider thematic plays. For example, companies specializing in EV charging infrastructure or battery recycling could benefit from government incentives, according to a Forbes outlook. Meanwhile, the automotive aftermarket-driven by aging fleets and higher new-car prices-offers defensive opportunities (RCFact).

Conclusion

The auto sector's post-recovery phase is marked by both opportunity and uncertainty. While Ford's short-term gains and dividend appeal are compelling, GM's long-term resilience and strategic flexibility position it as a safer harbor in a volatile market. Investors must weigh these factors against macroeconomic risks like tariffs and interest rates, while also considering the sector's broader shift toward electrification and software innovation. By reallocating exposure to reflect these dynamics, investors can capitalize on the sector's transformation without overexposing themselves to its inherent risks.