Just a couple of months ago, things looked great for GM (NYSE: GM) and Ford (NYSE: F). Both stocks traded near 52-week highs. GM was up 40% for the year at one point. Wall Street assumed that, with new UAW contracts in hand, lower costs would drive better North American operating income. The US car companies would be turned around.
Since then, GM stock has fallen from $43.20 just over a month ago to under $28. According to the FT, "the outlook for US consumer spending has darkened, dashing hopes for an early recovery in car and truck sales." That is putting it mildly.
Total sales of light trucks and cars in the US should hit over 16 million units this year. Some estimates say that the number may fall to 15.5 million next year, but industry experts like Jerome York, who used to serve on the GM board, think the number could go much lower.
On the back of an envelope, sales of 15 million units next year would knock about $25 billion out of total US car sales revenue. Ford only does about $40 billion in global car sales in a quarter, so that number is significant.
If GM and Ford end up taking $10 billion of the fall in US revenue, it will wipe out any savings the UAW contract has given them. They will have to go back to the drawing board on plant closings. They may have to look for more white collar lay-offs. It is also likely that incentives will make a big comeback to keep inventories from getting out of hand.
In other words, a mess.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
11-26-2007 @ 12:29PM
vcs745 said...
I still believe that GM is on its way to profits and very soon..Investors who are not buying into the GM stock market will miss out by the end of the year....This stock is going to hit $50 to $55 within 60 days and investors on "record" will get a big surprise......GM core suppliers are now experiencing greater long term contracts with their suppliers and this translates into a win-win for everyone...including quality issues.
11-28-2007 @ 10:06AM
Paul McCoy said...
Remember when "our" US government kept the Chinese government 2 1/2 generations behind us in technological information??? That was when it was OUR government and NOT the sole property of an elite aristocracy hell-bent on profits over OUR national security. Corporate America's greed has awaken a "sleeping giant" that fundamentally hates us and thereby they've committed acts of treason. Let them pay for the mess they've made by taxation. Let them send THEIR children to fight China when it rears up on its hind legs to crush us.
11-28-2007 @ 10:06AM
Paul McCoy said...
Don't buy a car today, because what has happened to the price of homes will soon happen to the price of cars. The American Auto Industry did this to themselves with their "short term" thinking of cutting wages and their workforce in half to save money up front. They off-shored EVERYTHING and today the housing market is going bust; and soon will the auto industry. So, where's the American Auto Industry BIG GAIN now?!! They made a short term BIG profit, but they will soon suffer an even BIGGER long term disastrous loss.
11-28-2007 @ 12:51PM
Edward Plasick said...
Does anyone remember Crysler asking our Federal government for financial assistance? Crysler paid the money back. Farmers receive assistance and do not pay the money back. The attitude now is sink or swim. Remember the warning..."As GM goes so goes the nation".What will it take for people to march in the streets to protest as they do in other countries? There seems to be a lot of complacincy (sp) Many of us are asleep at the wheel.