GM and Ford: Still Easy Shorts

 On April 9^th, I published an article concerning the inevitable downside that was to be found in US auto stocks, more specifically Ford (F) and GM (GM) (Why Auto Stocks Are an Easy Short). This article drew a fair amount of criticism, with comments ranging from my “high school writing” to my “novice investment style.” However, the fact of the matter is that the tape doesn’t lie, as both Ford and GM are trading at -15% and -33% respectively than they were just two months ago. Now, I’m sorry, but that’s what I like to call a quality short play.

So what can we expect from Ford and GM in the next few months? Well, expect more of the same. Nothing has changed at Ford and GM over the past couple of months, except for the slight possibility that the management at these companies may FINALLY be realizing that SUVs and trucks are going to be a fairly poor gamelan for the foreseeable future. Oil is only going to get more expensive and anyone who actually believes that oil will retreat back to the levels of six months ago is not only unrealistic, but just plain ridiculous. It’s not rocket science, just simple economics: the BRIC countries are developing exponentially, causing the demand of oil to outstrip supply and right now, it’s a losing battle.

In auto sales numbers released for the month of May, GM’s U.S. sales fell 28 percent in May compared with a year earlier, while Ford's sales fell 16 percent. GM's truck and SUV sales fell 37 percent and Ford’s pickup and SUV sales dropped 26 percent. Toyota (TM) sales for the month of May slipped only 4 percent.

And just Friday, Ford delayed the launch of the new F-150 as well lowering its forecast for industry wide U.S. auto sales this year to 14.7 million to 15.2 million vehicles, including medium and heavy-duty trucks. This is the second time this year Ford has cut its US sales forecasts. No surprise there. Ford also mentioned that it would be difficult to avoid a loss in 2009.

I would usually do a technical analysis on these stock charts, but honestly, the charts look so terrible that I won’t even bother. To anyone that is long any of the US auto companies, all I have to say is good luck. 

Disclosure: none

Comments

[hoffman23:]

Putting Ford and GM in the same category is insane !!! They are two totally seperate situations. GM has become a faster moving, far more adaptive company then in the past. It is making billions in the BRIC countries and is working quickly on a NA turnaround. Ford, on the other hand, has hocked everything to the banks, including the blue Ford oval. Ford 's problems are similar to Chrysler, not GM.Their cash till is starting to run dry. Do better homework.

2008 Jun 22 09:35 AM

[wendling_r:]

As far as shorting both of these issues the editor is one hundred percent right on target. He however failed to mention the largest short sale manager in both issues and that is the specialists who run them. The have the ability to sell the issue short and since they have unilateral control of the stocks price both up and down and total control of buy and sell orders they manipulate the stocks prices up or down every day to maximize their profits at the expense of the average investor, (IE) you and I.

For those individual investors interested in my opinions on where these stocks prices are headed in the short and long term and what information I use to base those opinions on go to the following website bearfactsspecialistrep.... Click on the top of the Home page where it says, “Free Stock Reports” and you will be taken to the reports page. There you can read the reports on this issue and others. It will cost you nothing except the amount of time it takes you to read the report and any other pertinent information that you find interesting on how the “Specialist System” works and how it defrauds the average investor out of his and her hard earned money’s. The choice is yours, learn how to invest properly and make money in the market and this stock or continue to invest as you have in the past and continue to accumulate losses in the market.

Thank you for your time,

Richard

2008 Jun 22 09:53 AM

[Bear Stocks...:]

Here are some more potential shorts : SNCR, PPC, NCMI, CHDX, CTX, CQB, CLMT, TSO, FMCN, KBH

2008 Jun 22 10:51 AM

[Lou Grinzo:]

My only quibble with this article is referring to trucks and SUVs as "a fairly poor gameplan for the foreseeable future". I think you're being too kind; I would have used the expression "train wreck".

As Mulally pointed out in an interview recently, Ford's internal projection is for US gasoline prices to remain in the range of $3.75 to $4.25 through the end of 2009. Once American consumers are further squeezed by energy and food inflation for another 18 months, how bad will all light truck (pickups, minivans, SUVs) sales be? I think we're just starting to see the US automarket reshape itself in response to the end of cheap oil, and the only question is how well will the Big Three react to that fundamental change.

2008 Jun 22 11:15 AM

[notsosmart:]

its not only cars & trucks. our whole economy has to reshape itself since it was based on cheap oil.so unless a good substitute for oil is created our way of life will downgrade slowly as the some others upgrade.thats globalization & for the benefit of the large international corps.

2008 Jun 22 11:25 AM

[moose60061:]

I tried to short GM in my Schwab account Friday but they have none avalable!!

2008 Jun 22 11:51 AM

[Glenn Mercer:]

Frankly I liked "gamelan" better than "gameplan" anyway (grin).

2008 Jun 22 12:02 PM

[raja:]

Mulally is another moron who was recently (about 3-4 months back) telling us that the turnaround is going fine. These morons (CEOs and Ex- CEOs like Bill Ford, Alan Mullay, Rick Wagnor) will be walking away with millions even if they lose their jobs. They are all over Wallstreet, the CEOs of MER, CITI, LEH, etc etc. telling us every Qtr. that the worst is over and everything is fine. Try dodging these bullets - Housing, Subprime, Inflation, Recession, Credit Crunch, Oil, Never ending Middle East crisis, Job losses etc. etc. Every week, at least a couple of them hit you



They keep postponing the inevitable - every heard of painful slow death due to a 1,000 cuts and bruises ??

2008 Jun 22 12:44 PM

[Paul Killinger:]

Wow, Raja, that was some list. Ouch!

The author failed to mention a couple of things about shorting the auto companies. S & P is now looking at downgrading their debt, but institutions and bondholders are already buried so deep they will have to wait it out in hopes of a turnaround someday. As for me, I believe they could rally from here as the market is oversold, and on their new technological product introductions in coming months. In any event, I wouldn't touch them right now one way or the other with a ten foot pole. (...And good for him, he made a great call!)

2008 Jun 22 03:08 PM

[Paul Killinger:]

Andy,

You did neglect to say that only two out of the four BRIC's have a need to import any energy at all. And the other two are not only already energy independent, but on their way to becoming major energy exporters themselves, as well,

As regards the two present importers, China and India, they are both probably smarter than we are, and will figure out a way to become energy self-sufficient before we do. Of course, that doesn't portend well for the future of U.S. automakers, either.

2008 Jun 22 03:23 PM

[leh:]

Yes, nice call indeed, especially when Barron's & company were calling Ford a compelling value play--not! Ford can't even supply the market the one model in heavy demand, namely the Escape Hybrid. Why? Battery pack shortages. Seems only Toyota was smart enough to more or less become their own battery supplier when they partnered in PansonicEV--and even they are having trouble keeping up with the demand for their hybrids--then again, they probably sell 10x as many as Ford, if not more.

And GM's $30 billion of debt is looking like a tough sled to pull in this economy; think I read today they're burning through $3 billion a MONTH right now.
Their PHEV Volt may well be a big hit, but it's still 2-3 years off. And their mild hybrids like the Saturn Vue are garbage--virtually all of last years models were recalled in December for leaky battery packs made by Cobasy, another fine US company run by former Detroit incompetents.

My only question is will ANY of the big three US automakers survive this recession?

2008 Jun 22 03:31 PM

[Paul Killinger:]

Don't laugh, it's safe to say the future viability of our auto, airline and trucking industries among others are all open to question now. Not to belabor the point, but this plays right into the hands of the D's in Congress. Assuming they're re-elected and can get their man in the White House, nationalizing a good part of American industry is just the kind of thing they'd relish anyway.

2008 Jun 22 04:45 PM

[Greg Weston:]

What you are missing is the strong chance that there will be big subsidies to F and GM from the US Gov to the form of hybrid factory startups and national health care.

Both companies can and do produce a variety of good small cars, just not so far for the US market. GM is bringing over more and more of its Opels, rebadged as Saturns, and Ford has a number of good small cars in Europe and Latin America it will be bringing to the US in the coming years.

2008 Jun 22 04:50 PM

[jackh:]

They already have national health care... they just have to open the new plants in Canada.... or go to Mexico where it's every man for himself.....

2008 Jun 22 06:53 PM

[Wez:]

Silly me, with Kirkorian offering $8.50 a share for Ford, I thought it may actually try and stay at around that level.

2008 Jun 23 12:08 PM

[FrankNJ:]

What about Toyota stock, as of today, it is down 35% from the start of the year! This problem is so severe, that all automakers are being affected. In Toyota's case, the short-sightedness of building a new truck plant in texas (for the giant gass-guzzling Tundra) for hundreds of millions of dollars is backfiring. Again, no one in the industry is immune.

2008 Jun 24 05:05 PM

[the details:]

Great articles. Commenting now in September and looking back, or forward, I only see much more of the same. Anyone who believes that the coming $25B federal loan will solve their situation is wrong. Look at GM's balance sheet. Even better (or worse), look at Ford's financing division, its total debt and its default rate. If you thought of Ford as a failing car manufacturer, how about thinking of them as a credit bank, which is what they essentially are for the past couple of years ... starting now is almost too late.

2008 Sep 19 05:26 AM