Auto Stocks Taking Hard Hits

June 19, 2008
What does Kirk Kerkorian Know that you don't? That's a question a lot of people are asking, these days, after he picked up 20 million shares of Ford Motor Co. stock at $6.50 a share. Considering the stock is mired in the low-$6 range, that's a hefty premium, and encouraged other shareholders to tender over 800 million shares for the billionaire's bid.

Ford's isn't the only automotive stock taking a hit, however, particularly in the wake of a report issued by Deutsche Bank's influential auto analyst Rod Lache, who is taki aim at General Motors.

Lache isn't particularly optimistic about anything in the U.S. automotive sector. He'd previously predicted that total car and light truck sales would fall to 14.9 million, from the 17 million-plus peak earlier in the decade. Now, he's cut his numbers to just 14.5 million.

And while it seems like no one will escape the impact of a weak economy, sluggish housing, tight credit and soaring fuel prices, GM may find it especially difficult to weather this perfect storm.

With sales of its once-profitable trucks plunging, and its overall market share deteriorating, despite earlier corporate forecasts, Lache expects GM to announce still more moves to deal with the rapidly-changing automotive environment.

"GM will need to present a credible restructuring plan in order to raise additional funds from banks and public investors," the widely-quoted analyst wrote. Any new moves will "need to be aggressive," he concluded.

The market responded with concern, GM shares taking an immediate, 7 percent hit on Wednesday, and the stock proving quite volatile on Thursday. As I write this blog item, the General's shares are hovering just above yesterday's $14.89 close, which was a new, 52-week low. (At one point, early today, shares plunged to $14.39.)

Virtually everything automotive took a bath after the Deutsche Bank report, Ford tumbling 5.8 percent, and even Toyota taking a rare dip of nearly 1 percent. Suppliers like Visteon and American Axle tumbled, and even the news that the FCC is ready to approve a merger between Sirius and XM, the two big satellite radio firms, hasn't helped them much, in light of declining sales for the cars that generate much of their subscription base. Even today, as many auto stocks leveled off, both posted double-digit declines.

The satellite radio providers took hits of their own when analysts at Goldman Sachs issued "Sell" advisories, earlier today.

Can auto and auto-related stocks recover anytime soon? It's hard to say, but it's not impossible. Some sort of stability in the economy, and at least a leveling off, if not a wholesale revival, of the U.S. market, would help. Investors are clearly seeking more cuts to deal with the current crisis, but as the old adage goes, you can't cost cut your way to prosperity.

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