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It has been almost three years since Wall Street was concerned about whether the big US car companies like GM (NYSE: GM) and Ford (NYSE: F) would make it. Ratings agencies were factoring the chance of Chapter 11 into their views of the companies. With cost cuts and a new UAW contract, many of those concerns went away.
As investors walked away from their worries about risks at the Big Three, the stocks staged huge rallies. GM moved from $19 in early 2006 to $43 last October. Ford made a similar but less dramatic move.
Now, the issue of how the US car companies will make it is on the table again. In March, Toyota's (NYSE: TM) sales were down over 10%. But, GM's sales fell 19% and Ford's were off 14%. According to The Wall Street Journal, "GM, Ford and Chrysler are all losing money in North America. Continued declines for the Big Three could hurt their turnaround efforts." One senior Ford executive said that the second quarter could be worse than the first.
If the next few months bring a worsening in sales, domestic car companies could be dealing with 25% drops in units sold. The amount of cost cutting that the firms have made will not weather that, at least not for long.
The future of the US car companies is at stake, and, right now, it does not look very good.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
4-02-2008 @ 10:58AM
Micro1234 said...
If one looks at only the North American market one could very easily feel a bit of unease. However, Asia, Europe, and South America all have at least another year of record setting growth for both Ford and GM. Right about the time Europe and SA start to cool the US market will be pulling out of the recession. Pent up demand along with lower wage costs will combine to create robust sales and profits in North America for both F and GM. Especially Ford since they will have an all new F-series that won't require as heavy of a discount as the current one, the MKS at Lincoln will be pulling in $7,000 profit margins on about 4-5000 units a month, the flex will be generating about $5-6,000 profits per unit on 4-5000 units a month and the Focus which appears to be taking a big chunk out of Toyota's Corolla's sales will be chugging along at about 25K per month and breakeven in profitability if not better which is a far departure from the old days of losing $2,000 on each sale. No doubt it will be rough through the middle of this year for everybody but this blogger seems to relish the alarmist role. He also seems to have a bias against F and GM that is based on perception rather than facts.