Driving Into a Ditch

November 6, 2008  

Shares of the auto makers are being dumped en masse ahead of what is expected to be staggering losses at General Motors and Ford Motor. Both companies are to report earnings (well, the lack thereof) Friday, and expectations of putrid results may be the reason the companies are doggedly looking to speed up disbursement of a billion loan from Washington.

On a bad day in the markets, GM is getting wrecked, down 14% to .80 each, while Ford is down 8.6% to .91 a share. Neither company is in particularly good shape. GM is expected to report a loss of .51 a share on revenue of .34 billion, down from .83 billion a year earlier, according to the Thomson Reuters consensus, but those estimates were expected to get revised lower as analysts react to a larger-than-expected loss at General Motors Acceptance Corp., the financing arm of GM. That company posted a loss of .5 billion, but, more importantly, said it has met with funding challenges. That augers for trouble at GM, as auto loans have been the lifeblood of sales for, well, ages.

Oddly enough, GM will issue results during the trading session–at 10:30 a.m. ET–instead of before the market open as it usually does, and when Ford will release its financial results. In the meantime, GM and Ford are looking to solidify the infusion of capital through the loan package approved by Congress, and GM still is looking for additional funds to finance a potential merger with Chrysler.

John Neff of Autoblog.com notes that President-elect Barack Obama pledged support for the auto industry, so it wasn’t surprising to see GM release a statement Thursday welcoming Mr. Obama’s pledge “to support our nation’s domestic auto industry in its ongoing efforts to transform its business and develop new technologies.” (A long line of people who want money will be forming outside the Oval Office, and apparently, GM got there first.)

Some find the possibility of an infusion to help smooth a merger odd. “They’re in a predicament because they make cars that aren’t desirable; the money has been designed to help companies retool and find ways to make fuel-efficient autos that consumers will want and purchase,” says Robert Pavlik, chief investment officer at Oaktree Asset Management. “That’s for the good of the country, but if the companies can’t survive they shouldn’t be in business.”

For its part, Ford is expected to post a loss of 93 cents a share on revenue of billion, down from .27 billion a year ago.