GM, Ford Stock Plummets to Historic Lows

GM, Ford Stock Plummets to Historic Lows

By Michelle Krebs March 14, 2008

Shares of General Motors and Ford plummeted to historic lows Thursday after Morgan Stanley Research cut its earnings forecasts based on a lowered outlook for U.S. auto sales. The report came on top of waning consumer confidence, higher gas prices, tightening credit availability and issues with auto suppliers.

Ford stock fell to its lowest level since 1985. Ford’s share price fell to $5.12 a share during the day but rebounded slightly by day’s end, closing at $5.39, its lowest price since November 1985, according to Bloomberg.

GM’s shares fell to its lowest level since 2006. Prices fell to $19.07 a share during the day — the lowest level since April 2006, according to Bloomberg but closed a little higher at $20.31 a share.

Wall Street Firm Cuts Earnings Outlook
Morgan Stanley auto analyst Jonathan Steinmetz wrote to investors Thursday telling them he was cutting his earnings estimates for the automakers following “poor February U.S. sales, poor fourth-quarter results” and his revised — weaker — forecast for U.S. car sales in 2008. Steinmetz cut his forecast from 15.9 million to 15.4 million. He said he expects GM will build 175,000 fewer vehicles in the United States and Canada this year than the 4.1 million it built last year.

As a result, Steinmetz said he was reducing his earnings estimated for GM and Ford, and suppliers with heavy Big Three exposure.

Steinmetz also issued a longer-term forecast. He predicts 2009 sales would be 15.8 million units and believes cost reductions, largely helped by concessionary contracts from the UAW and product rejuvenation, could help financials at GM and Ford by 2010 and 2011.

Credit Market Turmoil
Also of concern to analysts is the turmoil in the credit markets, which affect the automakers’ captive finance companies, Ford Motor Credit and GMAC, owned by GM and Cerberus Capital Management, parent company of Chrysler.

"The fact that Ford Motor Credit and GMAC are potentially going to have difficulty refinancing as a result of the overall market conditions in the fixed-income market is also weighing on the automakers' equity,” analyst Bradley Rubin of BNP Paribas told the Detroit Free Press in an interview. “If the captive auto-finance companies can't refinance, it's certainly going to be a tumultuous year at best."

Supplier Issues
A strike by the United Auto Workers union against Detroit-based supplier American Axle & Manufacturing is also of concern to Wall Street.

GM CEO Rick Wagoner confirmed this week the strike would affect the automaker’s first-quarter earnings but not in a huge way.

Still, some analysts see the strike stretching beyond another month and becoming more costly. Forecasting and research firm CSM Worldwide Inc. in Michigan told the Wall Street Journal it estimates GM’s lost production exceeds 5,300 vehicles a day. JPMorgan analyst Eric Selle said in a recent research report quoted by the paper that GM could spend $1.8 billion if the strike lasts a month, based on hourly wage costs and other factors.

GM is also confronted with the issue of Delphi. GM has agreed to invest more money into Delphi, one of its major suppliers, so it can emerge from Chapter 11 bankruptcy. An investor group in Delphi’s exit-financing deal is not happy about GM’s increased involvement.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.