GM is finished as Bankruptcy nears, shares slide below $1

Shares of General Motors (GM) are off about 20% today as all signs are pointing to the inevitable bankruptcy filing on Monday June 1st. The struggles in Detroit continue to drag down domestic Automakers but GM's well-publicized cash flow problems and stand-offs with the Federal Government have led to its demise.

Unlike Motor City brethren Ford (F), GM was unable to reign in enough the costs that had been spiraling out of control as deals with the UAW and CAW only go so far. The cost-cutting pacts with the Canadian union and the ownership agreements with the US Union could not in the end support the business model without an infusion of outside help that wasn't in sight. Italian car maker Fiat is still interested in GM's European operations to the tune of a merger with the Opel brand, but without a leg to stand on, General Motors as this generation has come to know it, no longer exists.

The electric Volt will not save the company now, far too little and far too late, all that will happen now is a sell-off of assets to anyone willing to buy. Perhaps GM can pick up the pieces and re-emerge as a brand in-tune with a new generation of motorist, but as a company and especially as a stock in today's market it is.

Turmoil at GM can only mean good things for competitors, with the company distracted by the slashing of assets, the brokerage of deals & spin-offs and the necessity of brazen survival for workers up and down the corporate chain, the only winners will be other car-makers.

Names like Ford, Toyota (TM) and Honda (HMC) should emerge with a stronger competitive advantage while luxury European brands continue to fight for the affluent customer throughout North America. Auto Stocks are all marginally higher today signaling that although one of the Titans of the industry has fallen, the car business will not go away and the remaining horses in the race will not slow down to pick each other up. What sometimes seems like a 0-60 sprint in the car business actually is and I expect the other big automotive companies to not pull any punches when it comes to advertising their strengths, and as is always prudent advice when it comes to investments: Stick with the strong.

Disclosure: Author owns TM

Bad News Bears economy continues to crush Automakers

Customer pessimism continues unabated in the United States leaving big ticket item sales near lows not seen in half a century.  For Automakers, this combined with the lack of credit for leases, means car sales are still plummeting. Detroit's problems have been well documented of late but even Japan's best saw US sales slump dramatically in December.

General Motors (GM) sales were down 31% in the last month of 2008, which pegged US sales over the year at a 49 year low. The American recession and consumer unsettling fears were the main culprits of blame, however with the company needed Federal bailout funds, it can't be stated that all is right with the biggest name in Michigan.

Ford (F) sales were almost a mirror image of its American brethren, down 32% in December, which netted total sales volume at a 47 year low.  Chrysler for all intensive purposes fared even worse according to analysts, who estimated 48% declines in December for the privately held American Automotive firm.

The United States car sales picture wasn't just bleak for domestic brands. Japan's best, Toyota (TM) and Honda (HMC) suffered sales drops 37% and 35% respectively in December.  At this point in the American economic cycle the consumer isn't discriminating, he's simply not setting foot into any dealership.  

This sales slump has taken a substantial bite out of the market capitalization of all automakers. 

GM, despite today's +4% day, sits down 58% over 3 months. Market Cap: $2.3Billion

F, up almost 5% today, down 36% over 3 months. Market Cap: $6.1Billion

TM, down 16% over 3 months. Market Cap: $103Billion

HMC, down 20% over 3 months. Market Cap: $38.7Billion

Despite the fact that the Japanese car companies have market caps that dwarf their American counterparts the sales slumps pose a potential opportunity. Amazingly, I think this bodes well for the American automakers, assuming of course all 3 get enough aid to keep afloat into any economic recovery.  The sentiment remains that Japan's best cars are still far more attractive to consumers on value for money and fuel economy but with car sales slumping across the board, it gives the struggling domestic makers more time to design, build and market attractive products in their local markets. Those consumers who today and tomorrow will not be buying the latest Honda Accord or Toyota Camry could potentially be swayed in 6 months time by a flashy, small, affordable and efficient Ford of Chevy vehicle.

All this still leaves one big if, can these companies build that attractive vehicle and turn around market sentiment? Recent history has shown the answer to be an emphatic no.  But, with recent government lifelines, the hope exists for a Detroit resurgence in 2009 and beyond.

Disclosure: Author holds no position in above mentioned companies

Is anything worth owning in the Auto Industry?

In short, with today's high Oil prices and report after report from the big automakers cutting production, the answer's a resounding No! There's simply nothing compelling out there valuation wise in the Automotive space.

Ford (F)? Virtually slashing it's popular Truck line in half with delays and production cuts, and the only car worth talking about, besides police departments contracts, is the Mustang which now has been stagnant for almost half a decade.

General Motors (GM)? $40Billion in the hole and counting... Not to mention probably the ugliest set of cars in America goes to Chevrolet. Truly incredibly uninspiring automotive design.

Toyota (TM)? Actually the only compelling value out there with a P/E of 9. However, whispers of US sales expectation management are seeping through the proverbial cracks, which will put some serious pressure on upcoming earnings reports. The company has the clout of being the "leader" in the Hybrid segment going for it but could the Prius possibly look any worse, and if the respectable Jeremy Clarkson of Top Gear is to be believed, in a race the Prius provided worse fuel economy than a BMW M3! (*Obviously the car was not run under normal conditions*)

Toyota at levels below $100 is one to put on the watch list, however times will continue to be rocky in the Automotive segment as a whole until Oil speculation subsides and consumers instill in themselves a renewed confidence to go driving again.

Of the companies traded in the US, the only one continuing to do reasonably well is Honda (HMC). Is it a big secret that it is up 4% Year to Date while others are off significantly? F (-20%) GM (-40%), DAI (-30%), TM (-10%).

Honda's secret sauce? Fuel efficient well engineered cars, that have very good engines, are impressively reliable and most importantly, don't make you loathe getting into them every single morning. It isn't hard to understand that successes like Accord and Civic, year after year show up on best lists and best seller lists. The Acura luxury line continues to produce winners as well, but a watchful eye on the headlines is a necessity in this sector.

With Toyota starting to whisper statements that US sales targets will be "tough to meet" it doesn't require multiple graduate degrees to surmise Honda may be in for some dry spells to come. While at this stage Honda is a Hold in this book, closer to $30/share is an attractive entry point for an innovative car company, that yet sees almost none of the corporate stumbling blocks faced by its US peers and has a big enough worldwide presence to funnel out good small cars all over Europe and Japan.

Disclosure: Author holds no position in the above mentioned companies.

Update: Thursday June 26, 2008. Statement to clarify Chevy as a division of GM

Markets continue Bearish Tone post Fed, Recession fears creep in again

The week of the last Federal Reserve decision of the calendar year ends on another bearish note. Markets continued to pile up losses after the Fed's 25 basis point rate cut. Major indices in the US fell about 1.3%.

For the week the Dow Jones is down 285 Points, or 2.1%, but from the pre-Fed peak the major average is down over 400 points ending the week at 13340. The catalyst today was the American Inflation Report. Consumer Inflation in November rose by its highest total in over 2 years, led of course by every ones favourite commodity: Energy! Gasoline Prices were the major source in the increase in inflation, which caused today's market sell-off.

The CPI (Consumer Price Index), which is the main measure of inflation rose 0.8%, and even the core inflation number, which does not include energy, rose 0.3%. Traders were spooked by this as the Fed is treading a fine line between doing what's right for the economy and the crumbling credit markets and balancing the inflationary effects of lower interest rates. The dreaded "Recession" word came up again as fear of higher inflation data will lead to a pause in Interest Rate Cuts by the Federal Reserve in the future. When Traders talk Recession, growth stocks are the hardest hit, as the logical thinking is, growth is driven by positive country-wide economics.

The hardest hit sector today was consumer based.
More Logical trader thinking;
Recession fear = Folks Spending less money!
Especially on big ticket items so the big Automakers saw selling. Toyota (TM), Daimler (DAI), Nissan (NSANY), Honda (HMC) all were off more than 2.5%.

Although, most of America is probable concerned with what's gonna happen to "The Rocket" Roger Clemens, after being named in detail in the substantial baseball steroid investigation.

Markets Stumble out of the gate in December, Automaker sales Struggle

The month of giving and receiving started on a bumpy note for North American Markets as major indices were all lower. Nasdaq was the biggest loser on the day with an almost 1% drop, compared with the Dow, S&P and Canadian TSX, all losing between 0.3 and 0.6%. Today's selling was in part due to lackluster Automotive sales numbers.

General Motors (GM) reported a decline of 11% in sales numbers, while its major competitors Ford (F) and Toyota (TM) reported flat month-over-month sales. The only increases were seen in Honda (HMC) and Nissan (NSANY). It is clear that high oil prices are skewing buying towards smaller and more fuel-economic vehicles and that's putting a hefty dent in truck sales for the American brands. Punctuated by GM's 15% drop in Truck Sales.

The big story that is oil keeps rumbling around in the head of the average consumer and it is most evident in consumer spending on cars. In fact demand for smaller cars, more efficient cars, and even hybrids is remaining strong, according to Toyota. Seemingly though, what hope do big time car makers have in the United States? Their consumer is witnessing a de-valuation in home equity, gas prices that make it more than $50 to fill a tank, and a currency that worldwide is eroding faster than the Dolphins chances of winning a game this NFL season.

Truth be told, its a tough time for the car makers, and the executives are well aware of the difficulty. The trick will be, which company can provide the most incentives and the most practical products going forward into next year. From my view owning the automakers is a tough call right now but I like the path of Toyota and Honda, as those companies seem to follow consumer trends better and more nimbly than their American counterparts.

Disclosure: Author does not own any of the companies mentioned above

GM Posts Surprise Sales Increase but the Better Auto Investment is in the Far East

Worries over consumer spending due to the shake up in the credit markets spilled over into the automotive segment as analyst estimates called for lower sales virtually across the board. The big US Automakers: Ford (F), DiamlerChrysler (DAI) and General Motors (GM) have been pressured by International producers Toyota (TM) and Honda (HMC) among others.

August numbers proved to be lower for most of the Automakers with only GM posting an increase that was seen higher due to rental car sales deals. GM posted a 6% sales increase but that included an unsustainable 24% increase in sales to rental companies. Ford posted a 14% decline while Toyota declined 3%. Chrysler, now separate from Daimler-Benz also suffered decreases. Can the auto industry provide decent returns in the long term? It's an industry that is now seen almost in the same light as the airlines and that's not a good look for the stocks of these companies. GM had its share of problems but recovered and Ford has its own share or problems and seen continued pressure as a lack of innovative vehicles are crossing the Detroit assembly lines.

Buyers are looking toward smaller, more fuel efficient vehicles due to the continued high price of gasoline and its Toyota, Honda and Nissan (NSANY) that benefit the most. In fact Honda and Nissan posted sales gains in the month. That's a promising sign as the overseas markers are capitalizing on not only American consumer trends but worldwide trends as well. The US automakers are struggling to find areas of growth and have shown that the innovative nature of American Car Design is all but dead. I personally can not remember the last American made vehicle that brought upon any kind of positive response except for the retro-styled Ford Mustang.

That's not to say that Toyota or Honda or Nissan make the prettiest cars either. The difference is though, that the luxury lines of these automakers are renowned for innovative breakthroughs and design promise. Honda's Acura line and Toyota's Lexus line are terrific positives for brand and design image and are one of the reasons that these auto makers deserve a slight market premium, in terms of a higher P/E ratio. Honda stands at 11, Toyota at 12 while GM sits at around 10 and Ford is trying to get back in the black after being plagued by losses.

To really turn the US automakers around a grass roots design reinvention has to take place and this is no easy task. The overseas players have the brand power (luxury lines), the incentives (cheaper more fuel economic cars), and the worldwide manufacturing to compete with and overtake their American counterparts. Toyota has some work to regain its highs close to $140/share but with its strategy well in place the sales growth should continue and barring an American miracle should emerge as the Car Maker of the world. Honda is a third the size of TM in terms of market cap and has room to grow its plant and model base.

The era of the great old American car maker is over for the time being as Japanese manufacturing strategy becomes more entrenched and the vehicles become more affordable and practical for the average consumer.