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Old 03-04-2003, 23:37   #1 (permalink)
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Bad outlook drives auto stocks down

Wall Street is cynical about future prospects
March 5, 2003
BY JEFFREY MCCRACKEN
DETROIT FREE PRESS BUSINESS WRITER

A barrage of cynical Wall Street reports Tuesday, coming on the heels of poor February car and truck sales and looming talk of war, sent shares of Detroit's largest automakers and suppliers to their lowest levels so far this year.

One prominent Wall Street auto investment analyst downgraded the stock of General Motors Corp., Ford Motor Co., Delphi Corp. and Visteon Corp. to a lowly "sell" rating, arguing the risk of a prolonged auto downturn through 2005 is "greater than commonly perceived."

The analyst -- Rod Lache from Deutsche Bank -- cited increased competition from foreign automakers, backlash against sport-utility vehicles and ballooning pension costs as reasons for the downgrade.

A number of other Wall Street analysts also released negative reports. One from J.P. Morgan Securities used the headline "Weak February Sales Confirm our Fears." A headline from a Merrill Lynch report said auto sales were "not a pretty picture." Just last month, Banc of America Securities gave GM its first sell rating in recent memory. That's the lowest rating a stock can get.

GM saw the single-largest decliner on the Dow Jones Industrial Average, falling 5.7 percent Tuesday, or $1.89, to close at $31.27. Overall, the Dow slid 1.7 percent, or 132 points, to close at 7,704.87.

GM car and truck sales tumbled dramatically in February, with only small automakers like Mitsubishi and Porsche experiencing bigger percentage drops. The fear among analysts -- which GM now seems to be agreeing with -- is that the zero-percent financing deals and cash rebates GM was using to spur demand are losing their punch.

"It's clearly the case," said GM Chief Executive Officer Rick Wagoner in an interview with Bloomberg Television at the Geneva auto show.

"We were not surprised with January, but February was a little disappointing. Our expectation has been that the U.S. economy would begin to pick up as the year goes along. Normally that would result in some easing of incentives," said Wagoner. "At this moment, I have to tell you, things look a little weaker."

February sales were down 7 percent from a year ago. Experts had predicted that February sales would come in at an annual pace of 16.2 million vehicles, but sales instead came in well below that, at a 15.45-million-sales pace. That was the slowest monthly auto sales pace since August 1998.

Ford's stock was down about 4 percent, or 33 cents, to close at $7.74 per share. Ford car and truck sales were flat for February.

Stock for Troy-based Delphi, the world's largest auto-parts maker and largest supplier to GM, fell about 8 percent, or 62 cents per share, to close at $7.08. Dearborn-based Visteon, the largest supplier to Ford, fell 7.8 percent to 49 cents to close at $5.78.

Shares of DaimlerChrysler AG, while not singled out in the Deutsche Bank report, fell just over 4 percent, or $1.25, to close at $29.28 for the day.

Auto-supplier stocks -- including those of American Axle and Lear Corp. -- also sank on word that GM and Ford would both cut second-quarter vehicle production at their assembly plants because of slowing auto sales. GM said it would cut production by 10.5 percent while Ford hinted it would cut a similar amount.

"There's a combination of things hitting the automakers and auto suppliers," said David Sowerby, who helps manage investments for Loomis, Sayles & Co, a Boston-based money-management firm with $55 billion in assets.

"You've got weak sales, Iraq hysteria, rising oil prices, consumber spending is down and overall uncertainty about the economy. In the middle of that bullseye are auto stocks," he said.
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