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Bleak Forecasts for Ford and GM
As the New York Auto Show prepares to open, shares of battered U.S.
automakers struggle amid growing economic uncertainties

by David Kiley

Just in time for the New York Auto Show this week, and a major
investors' conference, General Motors (GM) and Ford (F) shares are
trading at 52-week lows with further declines in sight.

GM shares on Mar. 17 fell 7.2% to $17.83, which is lower even than the
drop in 2006 when whispers of bankruptcy were swirling around the
world's biggest automaker. Ford shares closed at $5.11. On Mar. 18,
shares of both automakers were nosing upward, along with the broader
market, after the Federal Reserve moved to bail out investment bank
Bear Stearns (BSC) and its announcement of a 75-basis-point cut in the
federal funds rate.

The share prices of the two publicly traded U.S. automakers, though,
reflect terrible fundamentals and a bleaker outlook for consumer
confidence and auto sales for the rest of the year. February auto
sales reflected what automakers and research firms forecast as a 15.2
million rate of sales for the first half of the year. The same rate is
projected for the second half, but some analysts say sales could slip
further for the year even after tax rebates from the U.S. government
stimulus package and regular tax refunds end up in mailboxes in May
and June.
Challenges in the Months Ahead

On Tuesday, J.D. Power & Associates (which, like BusinessWeek, is a
division of The McGraw-Hill Companies (MHP)) forecast 2008 auto sales
to fall to 14.95 million, the lowest level of sales since 1994. "While
the automotive industry's slow performance in January and February
certainly contributes to the anticipated drop in new-vehicle sales,
declining consumer confidence and spending, as well as turbulent
financial and economic market conditions, are primarily driving the
decline," said Jeff Schuster, executive director of automotive
forecasting for J.D. Power & Associates.

"The downturn in retail sales--coupled with declines across the fleet
market--also contributes to the overall reassessment of new-vehicle
sales for 2008," said Bob Schnorbus, chief economist at J.D. Power &
Associates. "Unfortunately, the current economic environment is
fraught with uncertainty and risk--with the financial crisis, worsening
oil prices, and weak housing and stock markets steadily impacting
other sectors of the economy. As such, our revised forecast is better
positioned to reflect the challenges automakers will face in the
months ahead."

General Motors' plight is exacerbated by a strike at one of its key
suppliers, Detroit-based American Axle & Manufacturing Holdings (AXL),
which supplies parts for GM's pickup trucks, SUVs, and some of
Chrysler's vehicles as well. GM has had to idle 30 plants for want of
parts. The interruption in production could cost GM around $300
million in the first quarter.
GMAC Caught in Mortgage Mess

Standard & Poor's (also owned by McGraw-Hill) said Mar. 17 that it is
reviewing the credit ratings of GM and three of its large suppliers
that are also affected by the strike. Robert Schulz, an S&P analyst,
said the strike by 3,650 United Auto Workers union members, which
began on Feb. 26, "has gone on long enough to possibly begin to affect
the financial resources of GM and those suppliers most exposed to the
automaker."

GM also is contending with troubles at Troy (Mich.) auto parts
supplier Delphi, which may need more cash from GM, its former parent,
to emerge from bankruptcy later this year. Also weighing on the
automaker is financial turmoil at GMAC, the financial-services
company, of which GM still owns half. GMAC lost $2.3 billion last year
as more U.S. borrowers struggled to repay home and vehicle loans.
GMAC's mortgage unit, Residential Capital, alone lost $4.3 billion as
high-risk borrowers defaulted on mortgages, a trend that's shaking the
lending industry.

I was referring to the dividend paid in the first quarter.

On Mar 19, 9:13 pm, "Mike hunt" <mikehun...@lycos.com> wrote:

The first quarter is not over yet and the outlook is not positive