Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Tuesday, August 01, 2006

GM and Ford: Did Detroit Cut Enough?

Stocks: (GM)(F)

Words from the Wall Street Journal and Reuters were not terribly encouraging to Detroit. Reuters reported that The Big Three are now starting to make noises that the second half of 2006 will be below projections. The Wall Street Journal wrote that sales of big pick-ups, one of the largest cash generators for the car companies, are falling off. Fuel costs.

Both car companies have had some genuine success chopping costs. Ford has a plan to close 14 plants and cut 30,000 jobs in North America by 2012. That is if the UAW cooperates. By 2012, Ford may find that its market share in the US, which is running just above 17%, has fallen further. If so, the reductions will have come to late and be too little.

GM has raised its targets for annual savings from $8 billion a year to $9 billion. This was part of the dog-and-pony show for the company's last quarterly announcement. Of course, UAW cooperation will be essential to driving down costs, and the next big cycle of negotiations is in 2007. GM's North American operations made a slight operating profit, and Wall St was encouraged. The company's stock now trades closer to it 52-week high than its low, which was $18.33. Shares change hands at $32 now. By contrast, Ford's shares are at $6.55, barely above the 12-month low of $6.06.

While GM is viewed as better off than Ford in the race to ongoing profits in North American, both companies and the UAW may have to acknowledge that the pace of the sales decline at the Big Three could be accelerating. And, that would be a bitter pill indeed.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

Powered by Blogger