Ford, GM shares dive on industry concerns

John Porretto

Wednesday, Oct. 9, 2002 | 9:46 a.m.

DETROIT -- The world's top two automakers saw their share prices spiral downward Tuesday and this morning in heavy trading amid concerns about prospects for the auto sector, higher gas prices and the overall economic picture.

Ford Motor Co. stock was down nearly 9 percent to $7.75, off 75 cents, on the New York Stock Exchange late Tuesday -- a low not seen in a decade. Total volume of nearly 30 million shares approached three times the daily average.

Shares of General Motors Corp. also traded at levels not seen since the early 1990s. They closed at $33.60, down $2.28 or 6 percent. About 12.6 million shares traded hands -- more than twice the daily average.

The carnage continued this morning. General Motors slipped $1.20 to $32.40, the second-biggest loss in the Dow. Ford lost 55 cents to $7.20, bringing its loss his month to 27 percent. U.S. shares of DaimlerChrylser AG fell $1.74 to $30.50.

Darren Kimball, a Lehman Brothers Inc. analyst, cut his estimate of General Motors' free cash flow by $4.5 billion over the next four years because of the diminished value of the company's GM Hughes stake and "cash drain from the anticipated Fiat acquisition." Kimball now predicts that General Motors stock will rise to $38, rather than his prior target of $41.

Wendy Beale Needham, an analyst at Credit Suisse First Boston, said in a research note Tuesday that "it will be difficult for automotive stocks as a group to outperform the market over the next 6-12 months," after 18 months of outperformance.

Needham also downgraded Ford to neutral from outperform and trimmed by half the firm's share price target, from $20 to $10.

Needham said investor worries about a possible downgrade of Ford's credit rating, its unfunded pension liability and the performance of its Premier Automotive Group -- Jaguar, Land Rover, Volvo and Aston Martin -- had driven down the company's stock this year.

Ford is the No. 2 automaker behind General Motors.

"We think it will be a struggle for Ford's stock to move ahead of the market until concerns about its financial prospects are resolved," Needham wrote.

David Healy of Burnham Securities said auto-related concerns among investors include gasoline supplies if the United States goes to war with Iraq, forecasts of slightly lower sales volume next year and the possibility of another recession.

"The Street seems to be ganging up on auto stocks," Healy said.

Ford spokesman David Reuter said the automaker's stock price doesn't reflect the company's overall financial strength. He said Ford has nearly $25 billion in cash and an average maturity of 28 years on its long-term debt, with less than $1 billion due before 2006.

Reuter said the company, which lost more than $5 billion last year, expects to post a small profit when it reports third quarter earnings next week and continues to forecast a modest profit for the year.

"The fundamentals of our business are rock solid," he said.