GM, Ford shares dive as investor worries mount
Sunday, 25 May 2008

REUTERS, DETROIT- Shares of General Motors Corp hit a 26-year low and Ford Motor Co also tumbled on Friday as investors reacted to disclosures from the leading U.S. automakers about the toll from a slumping auto market and from recent strikes against GM and one of its key suppliers.

Shares of GM dropped almost 5 percent to their lowest level since 1982 after the No. 1 U.S. automaker detailed the drag on its earnings from just-ended strikes at two of its own plants and at American Axle & Manufacturing Holdings.

Meanwhile, shares of Ford extended a two-day slump following Thursday's announcement that the No. 2 U.S. automaker was slashing truck production and giving up on its goal of returning to profitability by 2009.

Ford shares were down 4 percent, hitting a six-week low. The stock has now lost 22 percent from its late-April high when it reported a surprise first-quarter profit. The decline has wiped out investor gains for the year.

GM shares have now lost 30 percent since the start of the year, touching a low of $17.38 on Friday -- their lowest level since February 1982.

On Thursday, Ford surprised investors with a warning that its turnaround was stalling because of high gas prices and the related collapse in sales of trucks and SUVs, a segment Detroit automakers have dominated.

For GM, the latest bolt of bad news was the price of a three-month-old strike against American Axle by the United Auto Workers and local strikes at two of its own plants.

GM said on Friday the strikes had reduced its earnings by a total of $2.8 billion. That includes about $2 billion in lost earnings for the second quarter because of an unplanned cut in production of about 263,000 vehicles, including some 33,000 of GM's better-selling sedans and crossovers.

In addition, GM said it had pledged $215 million to help fund buyouts and cash "buydowns" in exchange for lower wages at American Axle under a contract ratified on Thursday by the supplier's union-represented workers.

The pressure on GM's cash position from the strikes and a deteriorating U.S. sales market has emerged as a major concern for investors in the No. 1 U.S. automaker.

GM said in a filing with securities regulators the strike at American Axle had reduced its second-quarter production by 230,000 vehicles, equivalent to a $1.8 billion reduction in pretax earnings.

The American Axle strike, which began in late February, cut 100,000 vehicles from GM's first-quarter production, equivalent to $800 million in lost earnings.

GM, like other major automakers, books revenue when vehicles are assembled and shipped to dealers. That means it faced immediate losses on paper from the reduced production of even the slow-selling trucks and SUVs because of the strike.

About 3,650 UAW-represented workers at American Axle voted to ratify a concessionary contract on Thursday that cuts their wages by more than a third and closes three facilities, ending a strike that had idled about 30 GM plants in North America.

Most of the affected GM plants make slow-selling trucks and SUVs, including the Chevrolet Silverado and Chevrolet Tahoe.

HEADWINDS OR HURRICANE?

GM said it planned to make up for only a fraction of the lost production because of the economic downturn and a market shift toward smaller and fuel-efficient cars and crossovers.

Ford blamed that same shift in the market for the stall in its own turnaround plans. Wall Street analysts reacted on Friday by cutting their price targets for Ford shares and reducing their financial forecasts for the automaker.

"Ford's financial turnaround continues to be hindered by the intensifying headwinds," said Lehman Brothers analyst Brian Johnson, who cut his price target on the shares to $6.

Calyon Securities analyst Mark Warnsman, who cut his price target for Ford shares to $7, said he had been "relatively optimistic" about the company's ability to meet its turnaround targets under its restructuring plan.

But he said the timing of the warning, which came less than a month after the upbeat first-quarter earnings report, and Ford's statement that it would not have a revised restructuring plan until July raised questions about management oversight.

Ford's announcement suggested "senior management was blindsided by significant adverse moves in the 2008 forecast," Warnsman said.

"We are left to wonder just how effective the much-discussed senior management meetings have been of late in identifying and addressing emergent issues," the analyst said.

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