It's rapidly becoming the world's largest parking lot.
Is it the Cross Bronx Expressway at 6 p.m.? No, it's the Long Beach, California port, which along with the Los Angeles port is rapidly becoming a defacto storage lot, The New York Times reported, as thousands of unwanted, new foreign cars pile up, their future unknown.
The reason? Foreign new car sales have plunged as consumers cut back spending amid the caution-inducing U.S. recession and unemployment levels rise, which historically has led to a decline in new car sales. New car dealers order cars months in advance but have the authority to reject delivery if demand declines.
Further, if you thought only U.S. automakers General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler had lots and storage fields of unsold new cars, you're mistaken, so says economist Peter Dawson.
"This recession is an equal-opportunity pain inflicter for auto manufacturers, and it's hitting foreign car manufacturers as well," Dawson said. "Toyota (NYSE: TM), Nissan, even Mercedes-Benz are seeing their inventories build, despite promotions and sales incentives."
[Update 8:18: Citigroup Inc (NYSE: C) plans to cut 50,000 people from its workforce, CNBC television said on Monday. Citi shares were down 5.5% around 10:38 am.]
General Motors Corp. (NYSE: GM), Ford Motors (NYSE: F) and Chrysler - The Senate Banking Committee will hold a hearing on the issue of a bailout for the Big Three on Tuesday and the House Financial Services Committee on Wednesday. Meanwhile the debate whether they should be bailed out or not rages on. GM shares were up 5.3% in premarket trading (8:03 am) and were up 10% around 10:38 am.
Meanwhile, in an attempt to get cash as it awaits the government decision, GM will sell its entire stake in Suzuki Motor Corp. for 22.37 billion yen ($230 million). GM was also in discussions with the German government about guarantees for its Opel division.
Low's Cos (NYSE: LOW) continued to get hurt in the third quarter by the downturn in the housing market. Profit fell 24% to $488 million, or 33 cents per share, but the results still beat Wall Street's expectations of 28 cents a share according to Thomson Reuters. Revenue actually climbed to $11.73 billion from $11.57 billion, but same-store sales sank 5.9%, but recovered when the session started, up 4.5% around 10:40 am.
We all know the impact that the current economic slowdown has had on American auto sales, and today we get news that European car sales are also feeling the pain, with auto sales dipping 15% during the month of October.
According to the European Automobile Manufacturers Association, or the ACEA, October marks the sixth straight month that new-car registrations have fallen, but things have been much worse since the summer, when concerns of a global recession really started to spread.
General Motors Corporation (NYSE: GM) was the worst hit major American automaker, which had a 25% decline in sales in October on a year over year basis. Japanese maker, Toyota Motor Company (NYSE: TM) did not fare to much better, with a 24% dip in sales. Ford Motor Company (NYSE: F) did a little bit better, with a reported 11.9% decline in October sales. Europe's largest automaker, Volkswagen, held up the best among the majors, with "only" a 7.9% drop.
General Motors (NYSE: GM) can't compete in the global automobile industry. In the 1960s it had 50% market share, now it has 20%. Yet the management culture at GM hasn't much changed in the last 50 years. This despite the emergence of powerful global competitors, like Toyota Motor Corp. (NYSE: TM), which is poised to take over the global market share lead this year. That's why it would be a bad bet to put taxpayer money into GM.
It seems popular to blame the UAW for GM's problems. But as I posted in January 2006, GM can't compete for a variety of reasons. GM used cars as a loss leader for selling the more profitable leases. For the first nine months of 2005, GM limited its $6 billion in vehicle operating losses due to the $2.2 billion it made financing those vehicles. It was trying to cut capacity by 19% -- since 20% of its factory capacity was idle -- as its stock lost 44% and ratings agencies cut its debt to junk status.
By contrast, Toyota beat GM on every measure that mattered. Its stock was up 30% for the year; its products led on initial quality surveys, and consumers paid 14% more for Toyotas than for GM cars. Toyota also built its cars 7% faster and enjoyed a per car cost advantage of between $300 and $500 over GM. Toyota's cars were so popular that its factories were operating at 100% of capacity -- yielding a $1,488 per vehicle profit compared to GM's $2,300 per vehicle loss.
Honda (NYSE: HMC) closed at $22.40 Thursday. HMC overall option implied volatility of 92 is above its 26-week average of 42 according to Track Data, suggesting larger price movement.
Toyota Motor (NYSE: TM) closed at 67.09 Thursday. TM overall option implied volatility of 70 is above its 26-week average of 39 according to Track Data, suggesting larger price movement.
Tata Motors (NYSE: TTM), an Indian car manufacturer, closed at $4.50 Thursday. TTM overall option implied volatility of 84 is above its 26-week average of 61 according to Track Data, suggesting larger price movement.
Nissan (NSADQ: NSANY) closed at $8.57 Thursday. NSANY overall option implied volatility of 76 is above its 26-week average of 49 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Ford is expected by analysts surveyed by Thomson Financial to report a net loss of 93 cents per share, compared to a loss of a penny per share the same period of last year, on revenue of $28 billion. The company posted a much greater-than-expected loss in the previous quarter, but has also posted surprise profits in two of the past five quarters.
The company's revenues last year were $172.5 billion and its net loss totaled $2.7 billion. Its long-term EPS growth forecast is only 9.8%, much less than the sector average and the S&P. No surprise, the consensus recommendation of analysts remains to hold Ford.
The share price has fallen almost 60% in the past three months, and closed Thursday at $1.98, just 18 cents above the 52-week low.
U.S. stock futures fell Thursday morning as investors continued to focus on the grim situation of the economy, awaiting today's retail sales data from retailers today and Friday's employment numbers. Retail sales are expected to drop 0.3%, or 2.3% excluding Wal-Mart. Today, also, weekly initial claims will be released ahead of the bell as well as preliminary productivity number for Q3. Cisco's lowered sales outlook only underscored the economic picture. Global stocks plunged, but after the Bank of England took drastic measure with 1.5 percentage points rate cut to 3%, markets recovered somewhat. The European Central Bank cut rates by half a point. Meanwhile, oil declined below $65 a barrel.
Cisco Systems Inc. (NASDAQ: CSCO)reported financial results Wedensday after the close. While the world's largest maker of computer networking gear posted solid results that even Wall Street estimates, it warned that orders fell off abruptly in October and it projected a large fall in sales in the current quarter. Shares are down 5.3% in pre-market trading.
Toyota Motor Corp. (NYSE: TM), the automaker touted as the one able to weather the storm, has actually slashed its annual earnings forecast Thursday to less than a third of what it was the previous fiscal year due to the American economic slowdown and the yen strenght. Its July-September quarter net profit plunged 69% to 139.8 billion yen ($1.4 billion). Toyota shares are down over 10% in pre-market trading.
No matter what happened in Detroit, Toyota (NYSE: TM) cars were so well-built and so fuel-efficient that the demand for them would cut through the recession like a knife though butter. The notion made sense until it didn't, and the mirage went away quickly.
Toyota's U.S. sales have been falling most of the year, but the car company was doing better than most and has tremendous market share from Japan to Europe. Some analysts viewed that global footprint as a buffer.
Toyota's fortunes have not faltered, they have fallen apart. According toReuters, "Japan's Toyota Motor Corp more than halved its profit forecasts, saying annual net earnings will plunge to a 9-year low as a financial crisis batters demand for its cars."
The headline may be about Toyota, but it says more about the fortunes of weaker car companies like GM (NYSE: GM). If the strongest auto firm in the world is suffering so profoundly, how can U.S. operations hope to move back to profitability before they run out of money? The answer is that they probably cannot.
Toyota's figures reinforce what some analysts have believed. It would be unwise of the U.S. government to put money into domestic companies that probably cannot survive a long recession. It is better to let the market take its course and allow the firms that are still relatively strong to buy those that are weak. They will get the dying companies at fire sale prices, but they will be taking on huge cost burdens at the same time. Potential acquirers including Toyota will have to carry those weights for another two or three years.
Douglas A. McIntyre is an editor at 247wallst.com.
This is part of a weekly series about the auto industry. Record-high oil prices and a global slowdown have contributed to a crisis in the sector, and this column will highlight some of the interesting stories that emerge as that crisis plays out.
Monthly sales figures for the auto industry are enough to make a grown man cry -- especially if that man works for an American car company.
General Motors (NYSE: GM) saw sales fall a whopping 45% in October compared to October 2007. Potential GM partner Chrysler fell 35%, while Ford (NYSE: F) dropped 30%.
Auto sales were down 32% for all manufacturers. If the current sales rate continues, the industry will sell about 10 million fewer cars this year.
There are a number of interesting details in this month's report. For one thing, it looks like GM is in even worse shape than previously thought. Analysts have frequently stated that GM is burning about $1 billion a month, giving it less than a year until it faces a cash crunch crisis. But the astounding drop in sales at GM suggest that the cash crunch might hit sooner than that -- GM may have just a few months before bankruptcy becomes a very real possibility.
Another interesting detail: the SUV love affair is officially dead. Sales of Chevy Suburbans are down 70% year-over year, Tahoes down 77% and Yukons down 76%. And this despite the fact that gas prices fell dramatically during October.
U.S. stock futures fell Friday morning, after two days of gains and ahead of some economic data that will likely show further economic distress. The economic releases are: the employment cost index for q3, personal income and spending for September, the Chicago manufacturing PMI and the University of Michigan's consumer confidence for October. Global stocks generally declined Friday as oil again dropped below $65 a barrel to around $63.50. Meanwhile, the Bank of Japan cut its benchmark interest rate to 0.3%, which was less than expected, causing the Nikkei to drop by 5%.
Chevron (NYSE: CVX) is due to report this morning, following Exxon Mobil's (NYSE: XOM) record profit reported Thursday.
Burger King (NYSE: BKC) reported first quarter earnings of 38 cents per share, ex-items, below the consensus of 39 cents. Revenues came in at $674 million, versus the consensus of $667.6 million.
Electronic Arts (NASDAQ: ERTS) shares dropping 14% in after-hours trading after it posted a wider loss and reduced its annual forecast. The game maker also announced layoffs.
Sun Microsystems Inc. (NASDAQ: JAVA) on Thursday reported a $1.68 billion fiscal first-quarter loss due to charges, but sales also fell more than 7% from a year ago. In all, ex-items, the company would have lost $65 million, or 9 cents a share on revenue of $2.99 billion for the quarter. Shares were down 3% in after-hours.
Toyota Motor Corporation (NYSE: TM) said this week that it saw a sales downfall from the July-September quarter for the first time in seven years. When auto stalwart Toyota sees a downfall, things must be bad. Of course, it's no surprise that U.S. automakers -- all of them -- are hurting like they haven't in over two decades (or longer, depending on how you look at it).
The reason given by Toyota for the sales halt: declining demand in the U.S. American customers just aren't buying new cars at the rate auto industry execs expected. Call it a lack of money, a lack of credit access to finance new vehicles or folks just buying cheaper used cars. Probably all three are reasons Toyota saw itself sell only 2.24 million new vehicles globally in the July to September timeframe.
Although Toyota saw decent success throughout 2008 in terms of global sales (due to the market share it has in fuel-efficient passenger cars), demand in the U.S. shriveled down to virtually nothing this past summer. Toyota is not even close to being under the financial pressures of either General Motors Corporation (NYSE: GM) or Ford Motor Company (NYSE: F), but the Japanese automaker will probably see sales increase at a sluggish pace as consumer credit unfreezes and huge decreases in gasoline prices spur new auto sales. For Toyota, it has SUVs, trucks and fuel-efficient cars all available to sell -- with the style and marketing customers want -- so any auto upturn will land success in Toyota's lap first.
Ford (NYSE: F) does not have much too much left to sell now that Jaguar and Range Rover are gone. Selling the Lincoln division might be a good idea. Nice luxury brand. But, it shares too many engines and parts with Ford brands.
All Ford has left that could be pushed out the door for cash is Volvo. Ford has said it will never sell the division, but desperate times call for desperate measures.
Word comes today from The Times, that Volvo may go to BMW to help the Ford balance sheet. The paper reports that "Ford may sell Volvo, the Swedish car-maker, to BMW as part of a drive to raise cash, say senior car-industry sources."
Ford might get over $2 billion for Volvo, which is about what it got for Jaguar and Range Rover. But, that amount would probably cover less that four month's cash burn.
The fact of the matter is that if Ford cannot get direct aid from the government in the next quarter, the entire company will have to be sold off in parts or in whole. The only two companies large enough to make a transaction of that size are Toyota (NYSE: TM) and Volkswagen. Toyota may not want to risk the U.S. government challenging it having 30% of the American car market if it made the acquisition.
U.S. stock futures plummetted this morning, pointing to a sharply lower open. S&P 500 and Dow Jones Industrial Average contracts actually reached their daily limit down and were limited to stop contracts. The Nasdaq contracts were trading just above their limits too. The indices dove by more than 6% on concerns over the global economy. Stocks in Asia and Europe tumbled as global economic slump will no doubt crimp earnings and as the financial crisis is seen infecting the broader economy. The Nikkei 225 plunged over 9% in Japan. Meanwhile, The yen climbed to a 13-year high against the dollar as investors shunned higher-yielding assets and oil retreated further below $65 a barrel despite OPEC cuts. Existing home sales for Septmber are on tap this morning.
S&P 500 futures fell 60, or 6.6%, to 855.2 as of 7:19 a.m.EDT. Dow futures dropped 548 550, or 6.3%, to 8,226, while Nasdaq-100 Index futures declined 85, or 6.6%, to 1,168.
General Motors Corp. (NYSE: GM) shares are dropping over 13% in pre-market trade to $5.30 as concerns over its solvency increased. As Toyota (NYSE: TM) reported its first decline in years and as its attempt to merge with Chrysler are meeting roadblocks, traders are concerned about GM's health. GM has just announced more job cuts Thursday. Ford Motor (NYSE: F) shares are also down over 13% in pre-market action to $1.73 as investors have much the same concerns with Ford as they do with GM.
Toyota (NYSE: TM) is supposed to do OK in a recession. It has about 15% of the U.S. car market. Overall sales in America are dropping but the Japanese company is a "low cost" provider which benefits from modest labor costs and super-efficient manufacturing.
Toyota's real problem is that its home market of Japan is moving into a vicious recession and its sales in Europe are also troubled. All of this is leading to a significant drop in profits and the first year that the Japanese car company's sales have dropped in more than a decade.
Reuters reports that "vehicle sales now appearing likely to drop 2 percent below the previous year's levels, hurt by weak sales in the United States, Europe and Japan." Things are bad enough that Toyota may have to chop its sales forecast.
All of that may sound more ominous than it is. Toyota still has an excellent chance of having a huge lead in global sales over GM (NYSE: GM) before the next two years are out. GM has been the largest car company in the world for decades. Toyota caught it in total sales earlier this year.
GM may barely make its payroll as it moves into 2009. Its chances of retooling its model line get worse as each month passes. The credit crisis means the U.S. company has almost no access to the capital it needs to stay competitive.
Toyota, on the other hand, has an especially strong balance sheet and the ability to continue product innovation to expand into alternative energy vehicles and other popular cars.
Things may be a bit tough for Toyota next year, but by 2010 it could have a huge global lead over its rivals in sales and profits.
Douglas A. McIntyre is an editor at 247wallst.com.
It's rapidly becoming the world's largest parking lot. 
We all know the impact that the current economic slowdown has had on American auto sales, and today we get news that European car sales are also feeling the pain, with 
Honda 
Ford is expected by analysts surveyed by Thomson Financial to report a net loss of 93 cents per share, compared to a loss of a penny per share the same period of last year, on revenue of $28 billion. The company posted a much 
U.S. stock futures fell Thursday morning as investors continued to focus on the grim situation of the economy, awaiting today's retail sales data from retailers today and Friday's employment numbers. Retail sales are expected to drop 0.3%, or 2.3% excluding Wal-Mart. Today, also, weekly initial claims will be released ahead of the bell as well as preliminary productivity number for Q3. Cisco's lowered sales outlook only underscored the economic picture. 
Monthly 
Ford
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