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Saturday, September 02, 2006

Weekend Edition: GM's Little Miracle

Stocks: (GM)(F)(TM)

The monthly car sales figures are out, and behold, GM saw an increase in both car and light truck sales. GM vehicles sold during August were up 4% to 363,521. Light truck and SUV sales were up 4% as well, hitting 206,798 units. With gasoline prices rising, the move in the truck and SUV category was surprising. GM will cut some Q4 production as it makes a model changeover for some of its light truck models.

Ford vehicle sales were down 11% to 255,112. but pick-ups and SUVs dropped 20%. This category is more profitable for automakers than small cars.

Toyota continued to be the star of the car show. Its sales rose 17% compared with a year ago to 240,178 units. Its mix of more fuel effcient vehicles helped it once again. Compact SUVs also sold well for Toyota.

US car companies also indicated that they will be turning to incentives again to sell inventories of 2006 models and jump start some 2007 brands.

With August figures in, it becomes more evident how the perception of the US car companies has changed since the beginning of the year. GM was considered to be in the deepest trouble.

GM's stock bottomed for the 52 week period at the very end of 2005, hitting $18.33. It now trades at $30, up 64% from the low.

Ford's stock, by contrast, traded at almost $9 in January against a 52-week high/low of $10.20/$6.06. It did not hit its low until mid-July.

The stock prices, and when they hit their respective lows tells a tale of a change in perception about the management skills of Richard Wagoner, GM's CEO. Wagoner was considered clueless about how to turn the big car company around. But, then his cost cutting, work with bankrupt supplier Delphi, and improved financial results rehabilitated his image.

Ford was considered well ahead of GM at the beginning of the year. The company had laid out "The Way Forward" and investors bought the package, assuming cost cuts and new models would bring Ford out of its slump. A loss in the second quarter, an accelerating drop in sales of key models like the F series pick-ups, and the announcement of a 21% production cut may have permanently damaged the company's efforts to salvage itself. Bill Ford is considered little more than a jabbering dupe who has as his primary goal saving his family's fortunes before he is fired.

If GM can keep even modest momentum, Wall St will think it was wise to take the stock up by almost two-thirds since the beginning of the year.

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

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