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Dealers
Marty Padgett
GM and Ford stocks fell to dramatic, swooning lows right along with the Dow, freefalling into the 8,600 range for the first time in five years. GM shares are sitting at levels not seen since the Korean War. Ford is essentially a penny stock.
Inside the industry, it's turning into a bad season of "Survivor" (and who watches "Survivor" anymore, anyway?). It's about to get worse. The reports are dire this morning, with the possibility of another 500-point drop in the Dow. Geraldo Rivera's on morning TV, talking about how GM and Ford are trading at $4 and $2 a share, and the $25 billion in loans might be used just to "keep the lights on."
When Geraldo shows up in your back story, it's like Jim Cantore showing up at your oceanfront property. Not good.
But is it a game-ending scenario? Yesterday, I talked with CBS MarketWatch, which asked pointedly if GM was in danger of going bankrupt. With the cash on hand, GM says it will weather the rest of the year, and they know their wallet better than the press. I hesitate saying anything like the B-word because there are more levers yet to pull at both of the publicly owned domestics.
But like John McCain's campaign, the options are getting fewer and more esoteric. GM is trying to unload its headquarters to the notoriously well-funded city of Detroit. That's how extreme the solutions have become. Ford already mortgaged everything, including the blue-oval logo--and its best new vehicle, the 2009 Ford Flex, isn't selling well.
If there were any signs of recovery, the domestics might be able to muddle through this year and hedge their bets on the $25 billion federal loans, which come with plenty of strings. The problem is, analysts are predicting a bloodbath next year. Car sales in 2009 could hit a three-decade low of 13.2 million vehicles. Off recent highs of nearly 17 million car sales, that's like wiping GM, Toyota, and Ford off the sales charts entirely.
We're in freefall, and there's not even a glint of a recovery. The entire U.S. auto industry will be battling simply to survive. They'll have to do it for 18 to 24 months. And some of them won't make it, the headwinds are just too strong.
Think of the postwar implosion of car brands after World War II, when the market went from dozens of brands to a handful. Could we go from three U.S. makers to one--or none?
What's your take on the survivors? Who's going to make it through this Marianas trench?
Survivor logoEnlarge PhotoJust when we thought the grim times in Detroit couldn't darken, Thursday happened. GM and Ford stocks fell to dramatic, swooning lows right along with the Dow, freefalling into the 8,600 range for the first time in five years. GM shares are sitting at levels not seen since the Korean War. Ford is essentially a penny stock. Inside the industry, it's turning into a bad season of "Survivor" (and who watches "Survivor" anymore, anyway?). It's about to get worse. The reports are dire this morning, with the possibility of another 500-point drop in the Dow. Geraldo Rivera's on morning TV, talking about how GM and Ford are trading at $4 and $2 a share, and the $25 billion in loans might be used just to "keep the lights on." When Geraldo shows up in your back story, it's like Jim Cantore showing up at your oceanfront property. Not good. But is it a game-ending scenario? Yesterday, I talked with CBS MarketWatch, which asked pointedly if GM was in danger of going bankrupt. With the cash on hand, GM says it will weather the rest of the year, and they know their wallet better than the press. I hesitate saying anything like the B-word because there are more levers yet to pull at both of the publicly owned domestics. But like John McCain's campaign, the options are getting fewer and more esoteric. GM is trying to unload its headquarters to the notoriously well-funded city of Detroit. That's how extreme the solutions have become. Ford already mortgaged everything, including the blue-oval logo--and its best new vehicle, the 2009 Ford Flex, isn't selling well. If there were any signs of recovery, the domestics might be able to muddle through this year and hedge their bets on the $25 billion federal loans, which come with plenty of strings. The problem is, analysts are predicting a bloodbath next year. Car sales in 2009 could hit a three-decade low of 13.2 million vehicles. Off recent highs of nearly 17 million car sales, that's like wiping GM, Toyota, and Ford off the sales charts entirely. We're in freefall, and there's not even a glint of a recovery. The entire U.S. auto industry will be battling simply to survive. They'll have to do it for 18 to 24 months. And some of them won't make it, the headwinds are just too strong. Think of the postwar implosion of car brands after World War II, when the market went from dozens of brands to a handful. Could we go from three U.S. makers to one--or none? What's your take on the survivors? Who's going to make it through this Marianas trench?
Responses (11 total)
By JKD #1, Posted: 10/10/2008
I was laughing so hard reading this well-written and full of metaphors article :) I'm glad someone can see a bit of humor in these pits of despair...
It would help for Ford and GM to get much smaller fast but they really can't with all these current and ex employees tagging along, so there's always been only one thing for them to do. Too bad they'll be burning my cash during the ride all the way to the edge.
By Ed #2, Posted: 10/10/2008
GM stock is dirt cheap and a huge buying opportunity.
GM has recently forbidden its own employees to buy its stock, so low it thought the price was.
GM will survive. Ford may go broke, or be bought by GM.
Chrysler is a total loser and has no chance in hell. The high-risk venture capitalists that bought it made a decision as idiotic as Daimler did when it bought it for $37 billion in 99 and had to sell the POS for $6 billion last year or so.
By Dave #3, Posted: 10/10/2008
Chrysler will make it. Also so will Ford and GM but with even more cuts. GM I can see making even more cuts than Ford (ZR1?). Also dont forget yes Daimler did buy Chrysler for 37 billion and sold it for 6 billion, but dont forget how much the fleased Chrysler and also drove them head first into the ground before dumping them. They did make a TON of money off them and in the meantime just kept them barely afloat. They will be back big time.
By Bill Burke #4, Posted: 10/10/2008
It's easy in rough times to see everything as doom and gloom. This is a global problem and some foreign automakers will suffer also, but I believe most, if not all will weather the storm. Ed, Let's not dismiss the boys at Chrysler. The penta star team may be better positioned than most think. Venture capitalists have a nasty habit of making money,and I'd bet big on Chrysler. Sreamlined, agil and hungry it's no loser and maybe in the long run, a viable winner. Cheer up guys,somebody's going to need cars and the big three will deliver for a long time, count on it.
By JKD #5, Posted: 10/10/2008
But does everyone need a new and loaded 300C even if it's 24K after the 15K discount? (At this price I think I may NEED one soon... :) )
By Tom L #6, Posted: 10/10/2008
Good think my stock broker already jumped from the high-rise before I could buy that Ford stock. Below $2. Wow
By JKD #7, Posted: 10/10/2008
Market cap for GM is below 3 and Ford's is below 5 billion now. Gates could buy both companies with his spare change.
By Ed #8, Posted: 10/11/2008
Bill Burke: I am an optimist, actually.
Chrysler, as I expected, (or, more accurately, the greedy SOBS at Cerberus that bought it thoughtlessly) is asking GM to buy it.
In another segment, I look at what Chr has of value to GM. I could only come up with the Minivans, esp. given that Ford and GM's minivans were always DISMAL and have been discontinued, and JEEP. However, even if gas goes back to $2 a gallon, do not expect JEEPS to be anything than low-volume niche vehicles with insignificant sales and profits.
In the future, the only buyers of Jeeps will be those that use them off-road all the time, and that is a small percentage of the 100,000s that bought the Jeeps a few years ago.
The consumer has sobered up, and the StupidUglyVehicles breadvans on stilts are a NO-NO for most buyers now. The Detroit 2.5 have already understood that and their next offerings (2-4 years from now) will be very fuel efficient no matter what gas prices do.
By John V #9, Posted: 10/12/2008
Latest news from the industry trades are that the Detroit Two and a Half are now running scenarios under which US sales next aren't 13 million, but 10, 11, or 12 million.
It's all about consumer confidence, and given how long the US consumer kept buying things he couldn't afford on credit he didn't deserve, it'll take a long time for that to recover as the impact of this inevitable decline hits home.
Chrysler has exactly 3 things of any value at all: (1) Jeep, which has enduring niche value but shouldn't be selling 5-door econoboxes; (2) minivans, though it's a flat segment and they are competing with very viable entries from the Borglike Toyota & Honda; and (3) Dodge Ram pickups, which have a substantial footprint but are # 3 in a 3-contender race. The rest is substantially worthless, and Chrysler no longer has the internal ABILITY to design or build small cars: Look at the appalling Sebring and ancient 1998-like Caliber.
Chrysler's toast, and whether GM and Ford have to file for bankruptcy is entirely dependent on one factor outside their control: US and global consumer confidence.
Stay tuned ....
By Reece #10, Posted: 10/12/2008
"outwit" is one of the things you need to win survivor, no one in Detroit has the mental acuity to outwit anyone, I'm sure my four year old niece could outwit detroit.
Thing is they are all likely to survive, though may take a bit of corporate soclialism on the part of the US government, then again it does that with the farming industry and the defence industry so nothing new there.
The thing is as a business there is no reason why any of the three in detroit shouldn't be successfull. Tehre problem is management, pure and simple. How Wagoner can keep his position is anyones guess. He wouldn't have survived day 1. It is time that there is one big tribal council and 90% of the contestents (being management of the big three) are shown the door. Bring in people from Mazda and Toyota as they seem to be able to run car companies.
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