Auto fears grow

GM, Ford stock sell-off contributes to Dow’s drop

David Shepardson / Detroit News Washington Bureau

WASHINGTON — Investors are running for the exits and abandoning Detroit’s auto companies amid continued concerns about the future of the industry.

They’re worried about the credit crisis hurting auto sales; the deteriorating economy; and growing fears that General Motors Corp. and Ford Motor Co. won’t have enough cash to operate next year.

In the first nine days of October, GM lost half of its value — or $2.7 billion — and Ford has lost 60 percent, or $7 billion.

The auto stock sell-off contributed significantly to the Dow Jones Industrial Average’s 678.9-point drop Thursday.

Burnham Investment auto analyst David Healy said the sell-off "reflected a lot of doubt that these companies will survive." But he said there was a lot of panic in the selling. "There was a lot of shooting at the lifeboats."

Contributing to that was a cascade of negative news again Thursday for automakers — so much so, investors picked from various reasons to sell.

GM’s stock fell 31 percent Thursday to its lowest close since March 1950. Ford fell 21.8 percent Thursday.

The principal news prompting the stock declines was the announcement by Standard & Poor’s credit rating agency that it was considering another downgrade for GM and Ford, whose stocks already are sub-investment, or junk, grade.

S&P credit analyst Robert Schulz said the decision "reflects the rapidly weakening state of most global automotive markets, along with capital market conditions that will remain a serious challenge for the foreseeable future."

For GM and Ford he warned that "the accelerating deterioration in industry fundamentals will be a serious challenge to liquidity during 2009."

GM and Ford are both burning through a lot of cash. Ford’s gone through nearly $11 billion in a year and GM’s burning through at least $1 billion a month.

J.D. Power and Associates said the global auto market may experience an "outright collapse" in 2009 and slashed its forecast for U.S. auto sales this year and next.

"While the global automotive industry is clearly experiencing a slowdown in 2008, the global market in 2009 may experience an outright collapse," said Jeff Schuster, J.D. Power’s executive director of automotive forecasting.

He said J.D. Power expected the U.S. sales in 2008 would be 13.6 million — down from 16.1 million in 2007 — and fall to 13.2 million next year. Previously, the firm had estimated sales would reach 14.2 million this year and 14 million next year.

Auto sales fell 26 percent in September to below 1 million vehicles for the first time in more than 15 years as the credit crunch prevented many consumers from getting auto loans. Just 64 percent of consumers were approved for auto loans in the first 8 1/2 months of the year, down from 83 percent in the same period last year.

On Wednesday, Citi downgraded both GM and Ford from hold to sell.

GM was also hurt by news that its European sales fell 1.9 percent to 1.62 million for the first nine months of the year.

Analysts also said that both GM and Ford stocks were hurt by the expiration of a temporary ban by the Securities and Exchange Commission of "short selling" financial stocks. Short selling allows traders to borrow shares betting that the price will decline so they can buy them at a lower price and pocket the difference. The ban expired at midnight Wednesday.

GM and Ford were both on the list because of their credit lending arms interests. Ford owns Ford Motor Credit and GM owns 49 percent of GMAC.

The losses are especially painful for Ford and GM’s combined 185,000 U.S. employees, who have lost more than $2 billion in the value of company stock held in their retirement plans.

Both Ford and GM are taking steps to cut costs and turn things around, as well as bring more fuel-efficient products to market.

GM is boosting its liquidity by $15 billion by the end of next year, cutting costs by $10 billion, including more than 20 percent of its salaried spending.

It also has put its Hummer brand up for sale.

The company lost $19 billion in the first six months of the year and its U.S. sales are down 18 percent.

Ford’s sales are off 17 percent this year and it lost $8.7 billion in the second quarter.

Ford is cutting its salaried costs 15 percent and said in September it needed another 4,000 hourly buyouts after convincing about 4,200 UAW members to accept buyouts.

Other automakers suffered losses as the Dow Jones fell 7.3 percent. Toyota Motor Corp. fell 7.2 percent to $62.40, its lowest price in nearly five years. Daimler AG fell 8 percent. Honda Motor Co fell 5.2 percent.

Southfield-based Lear fell 9.6 percent to $7.29.

But Thursday’s bad news isn’t that new for an industry that’s been facing mounting woes for several years.

Although GM does not comment on stock prices as a matter of policy, GM spokeswoman Renee Rashid-Merem said: "Clearly, we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets."

She said GM is taking the actions described in the liquidity plan announced on July 15. Ford said it too was committed to its turnaround plan.

"While we are always disappointed to see our stock value drop, the most important thing we can do for all of our stakeholders is to focus on our transformation plan," Ford spokesman Mark Truby said.

"If we work together to deliver the plan and create an exciting viable Ford delivering profitable growth for all, the external measures will take care of themselves."