The wheels finally came off in Detroit. GM (NYSE: GM) is down 8% to $19.13, a new 52-week low. The stock bounced around that level in late 2005 and early 2006 when there were rumors of a bankruptcy.
Ford (NYSE: F) is off almost 10% to $5.15, well below levels the stock hit when Chapter 11 rumors were in the media.
It has finally occurred to Wall St. that the two companies will not have profitable North American operations in 2009, as they had planned. It may well be that they will not be profitable at all, ever. The dynamics of the business have turned so profoundly against the companies that they may never be able to be changed.
Rising oil and rising metal prices are destroying the domestic car industry. Lehman Brothers says that increasing commodities costs will add over $350 to the cost of each car. Gas, heading above $4, will fracture the sales of the big profitable SUVs and pick-ups, driving the few buyers left into small, less profitable sedans.
Car loan interests rates are not coming down. Banks won’t pass along what the Fed is giving them. The recession, which has already begun and is deepening, will keep buyers out of car dealers for months to come.
When the UAW contracts were settle, plants were closed and tens of thousands of workers were bought out or fired, the industry cut itself to its core. Any more cuts and the businesses will disappear down their own throats.
At a market cap of under $12 billion, Ford is almost worthless. GM is the same at $11 billion.
The US car companies are, to a large extent, lost. They may make money overseas but they have ceased to the rulers of the market where they were founded and made their bones.
Douglas A. McIntyre