Analyst sparks GM, Ford sell-off

[ProjectRS]

BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER

Share prices tumble ahead of today's Feb. sales reports
March 1, 2005


More production cuts and even bigger cash-back rebates from General Motors Corp. and Ford Motor Co. are expected today, after a leading Wall Street analyst warned investors Monday that they should sell their stock in the companies.


WHAT IT MEANS TO...
Stockholders
As GM and Ford stock prices fell to the lowest level in a year, shareholders saw their investments plummet. The State of Michigan lost $1.5 million on its GM stock.

Workers

The slide in market share could leave dealers with ballooning inventory, forcing production cuts and layoffs. That also would hurt suppliers still reeling from earlier cuts.

Car buyers

Several analysts predict the two automakers will be forced to offer even bigger cash-back rebates plus other discounts and incentives to remain competitive.


The "sell" recommendation by Ronald Tadross, an analyst with the brokerage firm Banc of America Securities, caused the automakers' share prices to tumble and was a jolt to the automakers as well as tens of thousands of their investors.


The two Tadross reports that explained the decision, and bluntly criticized the No. 1 and No. 2 automakers, hit the street before the market opened, and more than 31 million shares of GM and Ford traded hands by the end of the day. That's more than twice as many shares of GM and Ford stocks that are normally traded in a day.


Ultimately, shares of GM and Ford fell to their lowest prices in a year, closing at $35.65 at GM and $12.65 at Ford. The shift meant shareholders nationwide saw the value of their investments in the company shrivel up. The State of Michigan, for example, owns 1.2 million shares of GM stock and consequently lost about $1.5 million from that investment during the day.


In response to the activity, Ford issued a statement that said it remained committed to delivering solid results. GM, meanwhile, had no comment on the activity or Tadross' reports, which seemed to resonate with investors for several reasons.


The changing guidance to investors seemed to mark a significant turning point -- the juncture at which more analysts now recommend selling stock in GM and Ford than buying it. What's more, the reports came out a day before automakers were to report their sales results for February, allowing investors to get a jump on what is expected to be bad news today.


Big auto dealers across the country have been reporting that showroom traffic is down and that they are struggling to close deals. While the big Japanese automakers and the Auburn Hills-based Chrysler Group are expected to gain market share despite the sluggish market, GM and Ford will likely post big slides.


That would leave the two automakers with ballooning inventories and suggests that production cuts are needed for the next three months of the year. Local parts suppliers and autoworkers are already suffering under first-quarter production cuts. But Tadross and other analysts say more slashing is needed, and they also seem concerned that the automakers won't cut back enough.


Christopher Ceraso of Credit Suisse First Boston warned Friday that share prices of Detroit's automakers would suffer if the cutbacks aren't deep enough.


"The deeper the better," Ceraso wrote in a note to investors.


With all this uncertainty in the air, it's not surprising that many investors wanted to trade their shares before the automakers confirmed their sales results or production changes today.


The other reason investors seemed to respond to Tadross' reports is they suggested a changing consensus about Detroit automakers' stock. According to Bloomberg LP, four analysts now recommend selling GM and Ford stock, three advise buying it and seven advise investors to hold their current shares.


Tadross, who had advised holding the shares before changing his guidance Monday, cited market-share losses at both GM and Ford as the principal reason for telling investors to sell.


GM and Ford captured about 47.1 percent of auto sales in the United States last year, down from 49.1 percent in 2003, according to Autodata Corp. of Woodcliff Lake, N.J. "We believe we have been wrong not to be more negative on the domestic automaker stocks and their suppliers, because we have underestimated the repercussions of their share loss," Tadross wrote.


Tadross also cut his earnings estimate for GM by 50 cents, to $3 per share, for 2005. He likewise trimmed his estimate for Ford by 30 cents, to $1.50 per share for the year.


By way of explanation, Tadross panned several new products by both GM and Ford -- such as the Pontiac G6, Chevy Cobalt, Ford Freestyle and Ford Five Hundred -- for falling short of expectations.


Tadross predicted that the automakers would need to offer consumers bigger cash-back rebates and other discounts to consumers to sell their vehicles and remain competitive.


"We see incentives going up faster," he said.
http://www.freep.com/money/autonews/...e_20050301.htm

[goblue]

I don't know about the Fords...

But the G6 is priced wrong - that and going after the Accord with a 4 speed and a 60 deg OHV with nothing high tech (VVT,DOD,3V) was a big mistake. Need new models to judge, 4 banger better be priced right. MSRP around 17 with auto and a/c. Undercutting the accord by 1K should do it. 2.4Eco is basically equivalent to the Accords banger.

The Cobalt will need a few mid model improvements - as motortrend just proclaimed its beaten by the Mazda 3, and toyohonda have new models coming. Still cheap plastic in the interior, bad mileage for the segment (need VVT on a 1.8 or 2.0L Eco to get same power with better econ) Other than that - it just needs a little time.

As far as the rest of it, the US government needs to start thinking about what it means to lose the auto industry to the economy. These guys go under and well, a mild recession could be the best case scenario.

[tgagneguam]

Let's face it, if you're buying GM or Ford, even if for the longterm, you deserve to lose money. And that's even considering their reasonable dividends. I have tried a million times, but I simply cannot justify the purchase of GM stock. It really is a bad stock to purchase.

Incidentally, there are much more fundamental changes needed at GM than replacing a bit of the interior on the Cobalt or taking one or two thousand dollars off of the price of the G6 to turn this company around. It's a bit more complex than that. Products need to be spot on in terms of design, price and marketing, but that's definitely not the only change that's called for.

[Globalist]

Originally Posted by tgagneguam

Let's face it, if you're buying GM or Ford, even if for the longterm, you deserve to lose money. And that's even considering their reasonable dividends. I have tried a million times, but I simply cannot justify the purchase of GM stock. It really is a bad stock to purchase.

Incidentally, there are much more fundamental changes needed at GM than replacing a bit of the interior on the Cobalt or taking one or two thousand dollars off of the price of the G6 to turn this company around. It's a bit more complex than that. Products need to be spot on in terms of design, price and marketing, but that's definitely not the only change that's called for.

I agree with you. GM needs to be more agressive. I liked Wagoner's recent organizational change to position GM as a true Global company like Toyota, VW, Honda and Nissan. He needs more fresh blood to overcome the old way of doing things at GM. Hoping that this fresh blood won't be rejected.

[Hudson]

Originally Posted by goblue

I don't know about the Fords...

But the G6 is priced wrong - that and going after the Accord with a 4 speed and a 60 deg OHV with nothing high tech (VVT,DOD,3V) was a big mistake. Need new models to judge, 4 banger better be priced right. MSRP around 17 with auto and a/c. Undercutting the accord by 1K should do it. 2.4Eco is basically equivalent to the Accords banger.

The Cobalt will need a few mid model improvements - as motortrend just proclaimed its beaten by the Mazda 3, and toyohonda have new models coming. Still cheap plastic in the interior, bad mileage for the segment (need VVT on a 1.8 or 2.0L Eco to get same power with better econ) Other than that - it just needs a little time.

As far as the rest of it, the US government needs to start thinking about what it means to lose the auto industry to the economy. These guys go under and well, a mild recession could be the best case scenario.

I agree with your assertion that the G6 is not equipped to go head-to-head with the Accord, but why did you point out the "60 degree" engine as part of the problem?

As to your last point, the automotive industry remains a huge part of the US economy, no matter if GM and Ford are building vehicles or not. About 80% of all vehicles sold in the US are built in North America...from mostly American-sourced parts. And the Big3 currently make up less than 60% of the US market.

[goblue]

Originally Posted by tgagneguam

Incidentally, there are much more fundamental changes needed at GM than replacing a bit of the interior on the Cobalt or taking one or two thousand dollars off of the price of the G6 to turn this company around. It's a bit more complex than that. Products need to be spot on in terms of design, price and marketing, but that's definitely not the only change that's called for.

Yes, its more complicated than that - thank you for pointing that out tgagneguam - but those were 2 vehicles pointed out in the article as not getting it done - and to me, thats why. Obviously there are a host of changes that need to happen to every other vehicle in the fleet, much more complex than these 2 new vehicles as well as structural changes in the union, h/c and pension areas that are even more important than the product. I've only made about 50 posts about those issues, but I guess they all slipped my mind.

[goblue]

Originally Posted by Hudson

I agree with your assertion that the G6 is not equipped to go head-to-head with the Accord, but why did you point out the "60 degree" engine as part of the problem?

As to your last point, the automotive industry remains a huge part of the US economy, no matter if GM and Ford are building vehicles or not. About 80% of all vehicles sold in the US are built in North America...from mostly American-sourced parts. And the Big3 currently make up less than 60% of the US market.

GM's 60 degree V6s in OHV form tend to exhibit NVH in higher levels than the 90 degree version (3.8) As has been pointed out before, the 90 degree versions have been used in more upscale vehicles. Bottom line, I'd like to see the OHV 6s go the way of the 4 cyl OHVs. GM has sullied the reputation of the engines by not improving them fast enough and keeping NVH levels down. Its time to cut and run. Frankly, I expect the 3.9 to exhibit the same problems, with a little better fuel econ.

The second point is much more important. Though foreign companies tend to build more vehicles here - most parts are imported and profits exported. Losing the domestic manufacturers affects all the supply companines than may not be used in foreign replacements, white collar jobs are lost in greater proportion, and the vast numbers of retirees will recieve lower payments, as well as bankrupting the PBGC, which will require a taxpayer funded bailout.

This is still a huge deal, and these industries, IMO should be helped. Or we can wait, and bailout the pension and h/c obligations, and still lose.

[Hudson]

To your first point, a 60-degree V6 is inherently more balanced than a 90-degree V6. Perhaps 45 years of engineering on the 90-degree block has made the 25-year old 60-degree block relatively less smooth, but it naturally starts at a better place.

To your second point, no. "Most parts" are NOT imported. Most parts on vehicles built in North America (from the Big3 or from "transplants") are sourced from North American plants. Most of the profits from these vehicles and parts are reinvested in North American plants and engineering. Jobs lost to "transplants" are not because of outsource of parts to foreign lands, it's because of the higher numbers of UAW members per car built by the Big3 versus non-union workers at Toyota, Honda, Nissan, etc.

The largest problem with the Big3 vs "transplants" comes from heath care and pensions, as you point out. The "younger" transplants don't have the retirees that the Big3 have, but they will...just not as many of them. The UAW has done a long-term disservice to the American automotive industry and to the US economy as a whole. The union had its place 50, 60, 70 years ago, but today it's just in the way.

[goblue]

Originally Posted by Hudson

To your first point, a 60-degree V6 is inherently more balanced than a 90-degree V6. Perhaps 45 years of engineering on the 90-degree block has made the 25-year old 60-degree block relatively less smooth, but it naturally starts at a better place.

Thats what I had originally thought, but other here have said otherwise - so I really can't tell you in theory. Whatever the truth, GM's 60 degree engines are still worse than the 90s even after the "new" 3.5

Originally Posted by Hudson

To your second point, no. "Most parts" are NOT imported. Most parts on vehicles built in North America (from the Big3 or from "transplants") are sourced from North American plants. Most of the profits from these vehicles and parts are reinvested in North American plants and engineering. Jobs lost to "transplants" are not because of outsource of parts to foreign lands, it's because of the higher numbers of UAW members per car built by the Big3 versus non-union workers at Toyota, Honda, Nissan, etc.

No, many of the parts on toyhondassans built in the US come from other lands, and last time I heard, it was a much higher percentage than the parts coming from abroad on Big 2.5 vehicles. There's a fancy word to describe this practice of the japanese, kieratsu? or something like that. I've heard we engage in it too - just not to the same extent. Many japanese cars are built here of mostly, if not all, foreign sourced components.

Originally Posted by Hudson

The largest problem with the Big3 vs "transplants" comes from heath care and pensions, as you point out. The "younger" transplants don't have the retirees that the Big3 have, but they will...just not as many of them. The UAW has done a long-term disservice to the American automotive industry and to the US economy as a whole. The union had its place 50, 60, 70 years ago, but today it's just in the way.

The asian makers will never catch up in this respect b/c these benefits are not even provided. Pensions? they are smarter than that. Even GM no longer gurantees h/c in retirement to new hire white collars, they get 1% to invest. Also, many new hire white collars don't get pensions - they get 401Ks with a match.

[tgagneguam]

Originally Posted by goblue

Yes, its more complicated than that - thank you for pointing that out tgagneguam - but those were 2 vehicles pointed out in the article as not getting it done - and to me, thats why. Obviously there are a host of changes that need to happen to every other vehicle in the fleet, much more complex than these 2 new vehicles as well as structural changes in the union, h/c and pension areas that are even more important than the product. I've only made about 50 posts about those issues, but I guess they all slipped my mind.

Relax; there's no need to get pissy. I merely highlighted your point because there are those on this site who believe the beginning and end of the necessary transformation rests solely with product - and that definitely is not the case, as we both seem to agree.

[Hudson]

Originally Posted by goblue

No, many of the parts on toyhondassans built in the US come from other lands, and last time I heard, it was a much higher percentage than the parts coming from abroad on Big 2.5 vehicles. There's a fancy word to describe this practice of the japanese, kieratsu? or something like that. I've heard we engage in it too - just not to the same extent. Many japanese cars are built here of mostly, if not all, foreign sourced components.

Like I said, maybe GM hasn't spend enough money on the 60-degree V6, but it's inherently a smoother engine.

And on the transplants, you've been misinformed. But MOST parts for Toyotas, Hondas, and Nissans (and Mazdas and Subarus and Mitsubishis) built in North America are sourced from supplier factories in North America. It's a fact. Go find a North American-built model from any of the above and read the sticker. You'll see a number SIGNIFICANTLY higher than 50% US/Canadian content. Almost all Japanese transplants feature engines built in North America...some have transmissions built here...and nearly all have more than 60% US/Canadian content. It's been this way for years.