Betting on Ford and GM is a cheap wager now

— -- Q: Will Ford f be the sole survivor among the U.S. carmakers once the economy mends?

A: The depressed share prices of U.S. carmakers are even more irresistible to some than that new-car smell.

With shares of both General Motors gm and Ford trading well below $5, investors betting on a recovery can hardly help themselves. And you're asking a question many others have: If the U.S. auto industry turns around, who will be the winner?

There is a strong case to be made for Ford. The company ended the September quarter with cash and cash equivalents of $27.5 billion. Furthermore, the company generated cash from operations of $1.1 billion in the quarter. Subtracting the company's capital expenditures of $1.7 billion, which could likely be trimmed, that shows a quarterly cash burn of $600 million.

At that rate, which hopefully is not going to continue, Ford has enough cash to last nearly 46 quarters. It's important to note, however, that this does not include any non-operational costs, such as pension expenses. And it's possible the cash burn could worsen before it improves.

Over at GM, things don't look as good. During the September quarter, GM burned through $7.5 billion from operations. That gives you a quarterly cash burn during the quarter, when you include $1.4 billion in capital expenditures, of $8.9 billion. At that rate, the company's $15.9 billion in cash and cash equivalents as of the end of the third quarter isn't going to last even two quarters.

You can see why GM is in need of federal government bailout money.

That's just the financial picture. When you speculate on a turnaround, the product lineup is key.

Here, too, Ford appears to have the edge. Ford is moving aggressively to tackle the small-car market, with cars like the Fusion Hybrid. And Ford continues to get high marks for reliability. "Ford has made great strides in reliability, with some models now rivaling the best from the Japanese automakers," according to the "Report card for Detroit" study in the February 2009 issue of Consumer Reports.

Many Ford models also feature the innovative Sync system, developed with Microsoft, that is getting rave reviews. The system allows drivers to take calls, get directions and control their MP3 players without taking their hands off the wheel or eyes off the road.

With that said, the auto industry is famous for surprises. If gasoline prices remain low and the economy heals, Ford's bet on smaller cars could backfire. In addition, small cars have had infamously thin profit margins, which could be another problem.

That's why GM might still be a contender. Its upcoming Volt electric car is an interesting concept, as long as it can be produced at a cost that's appealing. And if gas prices stay low and the economy improves, consumers might go right back to their old ways of buying large vehicles.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.