GM, Ford Stocks Hit Historic Lows: Earnings Forecasts Cut on Poor Sales Outlook

From Detroit Free Press

DETROIT — In the face of a slowing economy and higher gas prices, shares of General Motors Corp. and Ford Motor Co. sank to historic levels last Thursday after Morgan Stanley Research cut its earnings forecasts based on a lowered outlook for U.S. auto sales.

Ford stock fell to its lowest level since 1985 and the price of GM stock fell to its lowest level since 2006, near the height of speculation that the automaker would need to declare bankruptcy if it didn’t speed up its turnaround.

Ford shares fell to $5.12 early in the day, but the Dearborn, MI, automaker’s shares rebounded slightly, closing down 31 cents, or 5.4 percent, at $5.39, its lowest price since November 1985, according to Bloomberg.

GM stock started the day with a steep drop to $19.07 — its lowest level since April 2006 — but rebounded to close down 62 cents, or 2.96 percent, at $20.31.

In the note to investors that kicked off the price descent, Morgan Stanley auto analyst Jonathan Steinmetz cut the earnings estimates for the automakers following "poor February U.S. sales, poor fourth-quarter results" and his own new, weaker U.S. industry sales forecast.

"We are cutting our 2008 U.S. sales estimate to $15.4 million from $15.9 million," Steinmetz wrote. "We are also introducing a 2009 forecast of $15.8 million. We are reducing our estimates on GM, Ford, and suppliers with heavier Detroit Three exposure."

Steinmetz lowered his expectations for GM’s estimated earnings per share this year to a loss of $1.30 per share from an earlier estimate of a $1.30 per share profit. The analyst lowered his estimate for Ford to a loss of 40 cents per share from an earlier estimate of a loss of 15 cents per share.

Steinmetz said he expects GM to build 175,000 fewer vehicles in the United States and Canada this year than the 4.1 million it built last year.

Analyst Bradley Rubin of BNP Paribas said the dramatic drop in the stock prices has been coming for the last year or so, and isn’t likely to pop back up for some time.

"We’re potentially going into a recession," Rubin said. "The fact that Ford Motor Credit and GMAC are potentially going to have difficulty refinancing as a result of the overall market conditions in the fixed income market is also weighing on the automakers’ equity. If the captive auto finance companies can’t refinance, it’s certainly going to be a tumultuous year at best."

Steinmetz wrote that the downgrades were based primarily on "near-term headwinds," and that potential for cost reductions and product rejuvenation could help financials at each company by 2010 or 2011.

At least one expert saw the day’s sell off as a buying opportunity.

Erich Merkle, chief forecaster at IRN Inc. in Grand Rapids, said it’s shaping up to look like a tough year, but one much like what he has forecast. Morgan Stanley’s U.S. auto sales estimate now sits where Merkle has pegged it for some time.

"When it was down by almost 10 percent in the morning, I bought some Ford stock," Merkle said. "Long term, at this price, I like Ford stock … If you’re looking for some big turnaround from Ford next month, that’s not going to happen. But I do think if you purchased the stock at $5.12 today and hold on for a few years, I think there’s an opportunity to make a nice return."