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Tuesday, August 15, 2006

New Opinions On Detroit

Stocks: (GM)(F)

Analysts issued new ratings for GM and Ford. The bottom line is that all of GM's good news is out, but Ford still has some in its back pocket.

Nice try, but today's PPI numbers show that there is news still coming out the affects both companies. Wholesales inflation dropped .3%, the largest move down in about three years. The reason was falling prices for light trucks and cars. At the wholesale level, car prices dropped .8% and trucks a whopping 3.1%.

Since light trucks are among the most profitable vehicles Detroit sells, there is still information coming out of the economy about GM, and Ford. And, the news is not good. It never is when the prices of your highest margin products are falling.

Bear Stearns moved GM from "peer perform" to "underperform". Ford got jacked up from "underperform" to "outperform".

Ford is still at the early stages of restructuring. Its dividend has been cut, and its product line will take longer to update than GM's. Ford in not a buy.

While GM may not be a flaming buy, it has at least demonstrated that it is the more adroit of the two companies at cutting costs and bringing new models to market. GM's share of North American sales is still much larger than Ford's and is not falling as fast.

The jury will be out on both company's until fall sales numbers are in and a couple more quarters of results are out. But rating the two companies so far apart on a buy, hold, sell scale reflects a misperception of what is happening in the domestic auto industry.

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

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