Auto bailouts helped forge great business turnarounds

Ford is making money hand over fist and gaining around the world. Solidly profitable General Motors is the China sales king and is investing heavily in a new lineup of products. And Chrysler has just returned to profitability with help from partner Fiat.

As key competitors Toyota and Honda reel from the effects of the Japan disaster as well as problems of their own making, each of the once-Big Three are thriving – despite a U.S. auto sales rate that remains well below pre-2008 levels. So how do you feel about those auto bailouts now?

While Ford didn’t need the kind of aid that GM and Chrysler got, it nevertheless benefited from the bailouts. If its rivals had collapsed, many of Ford’s suppliers might have followed suit.

The bailouts helped make possible one of the great turnarounds in business history. They also kept hundreds of thousands of Americans employed, preventing a bad recession from becoming something worse.

But will we ever be paid back? Yes – and maybe. Chrysler is aiming to pay off its loan soon. General Motors has technically paid its loan back in cash and stock, but a higher stock price is needed for Uncle Sam to break even.

(General Motors is a “Motley Fool Inside Value” selection. Ford Motor is a “Motley Fool Stock Advisor” pick and the Fool owns shares of it.)

Ask the Fool

Q: How do mutual funds work? – J.R., Pueblo, Colo.

A: They feature the pooled money of many investors that is managed by a company of professionals. Mutual funds make sense for most people, since few of us have the time or skills to choose investments carefully. Instead, we can tap the services of pros, who will increase our wealth for a modest fee. At least, that’s how it’s supposed to work.

There are many kinds of mutual funds. Some invest just in stocks, others in bonds, and some in both. Some focus on large companies, others on small companies, and others on a mix. Some seek income through dividend- or interest-paying securities, and others aggressively seek fast-growing firms. Some specialize in one industry (such as energy or biotechnology) and others in a region (such as Africa or Latin America).

Unfortunately, many professionally managed mutual funds don’t do so well for their investors, due to hefty fees or manager problems, such as poor investment choices or a counter-productive focus on short-term results. To combat this, it makes a lot of sense to just opt for broad-market index funds, which tend to have very low fees and invest only in the stocks of major indexes, such as the S&P 500. Over the long run, these have outperformed most managed, non-index funds.

Learn more about funds at www.fool.com/mutualfunds /mutualfunds.htm and research them at www.morningstar.com. Also, check out our recommended funds via a free trial of our “Rule Your Retirement” newsletter at www.ruleyourretirement.com.

Q: Where can I learn about Real Estate Investment Trusts? – A.M., Butler, Pa.

A: Try “Investing in REITS” by Ralph L. Block (Bloomberg, $28). REITs are worth considering, as good ones can pay hefty dividends.

My dumbest investment

Years ago, two friends in the oil business introduced me to a possible investment – in an oil partnership. I’m a geologist, so I researched the wells and reports and was confident it was going to be very profitable. I sold $48,000 worth of Exxon stock and bought in. After receiving a few sizable monthly checks, the cash flow began to diminish. The barrel counts were fairly consistent, but excuses were offered for the reduced payouts … until the receiver took over.

Yes, brother Ponzi had had his way with me. I had certificates of ownership issued by the state of North Dakota, but several others had the same serial numbers on theirs! I received a compensation check from the Treasury for a whopping $25. Had I kept those Exxon shares, they’d be worth more than $380,000 today! – M.J., Los Angeles

The Fool responds: Such ventures are often very speculative. Though they look promising, there’s little you can count on. And if crooks are running the show, you’ll really be in trouble.

Stocks may seem less exciting, but at least their financials tend to be audited.