A stunning 43 automotive parts makers have gone bankrupt since much of the world plunged into a recession last fall, including major names like Lear Corp. and Visteon Corp. But a key meeting with a U.S. supplier trade group has convinced KeyBanc Capital analyst Brett Hoselton that a major supplier disruption now appears unlikely and that the remaining suppliers are beginning to see improved pricing.

“The bankruptcy process is currently working on properly enabling Chapter 11 re-organizations rather than Chapter 7 liquidation, and debtor-in-possession financing is available either through banks and lending groups or the automakers themselves,” Mr. Hoselton writes in an August 24 research note.

Market tests are useful as they best indicate just what is the real value of hundreds of billions of distressed securities stripped away from any unwarranted optimism and green shoot propaganda. Tuesday's Visteon CDS (VC) Auction was just one such test. And if there was a way to grade the test, it would be an emphatic F: not so much for bankrupt Visteon which is already in the morgue, but for other comparable auto suppliers whose bonds and loans recently have seen overambitious PMs buying their debt as if every single credit instrument would be rolled into Taxpayer Capital LLC's Worthless Assets Fund. (One need only look at the stock price of LEA over the past 2 weeks to see the insanity going on with autosuppliers).

The final result: a jaw dropping 3 cent recovery on the Visteon CDS and 39 on the loans. I recently presented other auction clearing prices, which averaged about 10 for unsecured tranches. It is not surprising to see that the average price continues dropping aggressively: and this despite all the green shoots that the economy is experiencing, and despite Larry Kudlow's expectation for the recession ending in about a month.

The auto supplier firing squad just had its first casualty. Not surprising, and definitely not the last one. The bankruptcy was filed in Delaware. From the CEO:

Visteon is taking this step to maximize the long-term value of the company. During the reorganization period, we will seek to address our capital structure and legacy costs that are not sustainable given the current economic environment. The results of these actions, combined with our innovative products and excellent product quality, will allow Visteon to emerge a financially sound and well-positioned company.

The following companies are listed in order, based upon the credit-default swap spreads on five-year corporate bonds as of early April. The list is compiled from research provided publicly through MSN Money.

AbitibiBowater (declared bankruptcy on Friday) (ABH)
R. H Donnelly (RHDC.PK)
Visteon (VC)
General Motors (GM)
Six Flags (SIX)
Financial Guaranty Insurance
Hawker Beechcraft
Ineos Group
NXP Semiconductors
McClatchy (MNI)
Unisys (UIS)
CC Media
Beazer Homes USA (BZH)
YRC Worldwide (YRCW)
Hellas Telecommunications II
Lear (LEA)
Ono Finance
American Axle and Manufacturing (AXL)
Harrah's Entertainment
Truvo Subsidiary
Ford Motor (F)
Rite Aid (RAD)
MBIA (MBI)
Freescale Semiconductor
Univision Communications
ArvinMeritor (ARM)
Pioneer Electronics
Travelport

The spillover from D-3's empty wallets is beginning to really hurt domestic auto suppliers. First, Ford spinoff Visteon (VC), which last week barely made a $16 million bond interest payment, last night joined Lear (which Carl Icahn tried to acquire unsuccesfully in early 2007) in announcing it would likely receive going concern language from its auditors:

The inclusion of such a paragraph in such report would result in defaults under certain indebtedness of the Company, which defaults, if not cured or waived prior to the expiration of the applicable grace period, would result in an event of default under the Company’s principal U.S. senior secured credit facilities. Such events of default, if they occur, provide the lenders the right to demand all amounts due under the respective agreements immediately due and payable, which may result in a cross-default under other indebtedness of the Company. The Company has commenced discussions with the Administrative Agents of its senior secured credit facilities, as well as with an ad hoc committee of lenders under its senior secured term loan (the “Ad Hoc Committee”), in order to obtain a waiver and/or amendment relating to such potential noncompliance; however, the Company can provide no assurances that such waiver and/or amendment can be obtained.

Q4 2008 Earnings Call

February 25, 2009 09:00 AM ET

U.S. companies that supply the auto industry are on bankruptcy watch, according to a report in the Wall Street Journal Monday morning, which says many in the sector are lining up financial and legal advice for possible bankruptcy filings.

It was fairly obvious to Research Recap back in mid-December that the auto suppliers would be the next shoe to drop in the worsening auto recession, following ratings downgrades in the sector from Moody’s Investor Services.

• Wyeth, Pfizer reach deal. Wyeth (WYE) has agreed to be acquired by rival Pfizer (PFE) for $68B. Wyeth shareholders will get $50.19 per share in a stock-cash combo, a 29% premium to Wyeth's trading price before talks became public. The largest pharmaceutical deal in almost ten years, Pfizer will borrow $22.5B to finance the acquisition and will cut its quarterly dividend to $0.16/share. Pfizer CEO Jeffrey Kindler will lead the combined behemoth of a company which will have 130,000 employees and annual revenue 55% higher than GlaxoSmithKline (GSK), the world's second-largest drugmaker. Premarket: WYE +6.2%, PFE -4.2% (7:00 ET). (See below for Pfizer and Wyeth earnings, released today)
• Barclays balances writedowns with growth. Barclays (BCS) wrote down around £8B ($11B) of credit assets in 2008, and said 'record revenue' will cover writedowns and the bank won't raise additional capital. Barclays pointed to its investment bank and Lehman Brothers Holdings North American assets acquired last year as strong profit drivers. The bank has £17B more than regulators' capital requirement. Trying to calm investor concerns after a sharp drop in stock price this month, Barclays has advanced its earning release to Feb. 9 from Feb. 17. Shares +51.5% premarket (7:00 ET).
• Pressures rise for auto dealers, parts suppliers. Chrysler is pressuring dealers to accept cost cuts, reduce profit margins and refrain from slashing orders for new vehicles despite a forecasted slump in sales. "Dealers understand the need for all parties to put some skin in the game," said Chrysler Vice Chairman Jim Press, as the car companies rush to meet a March 31 deadline to prove their viability. Meanwhile, several auto parts suppliers are preparing for possible bankruptcy, including Visteon Corp. (VC), one of Ford's (F) largest parts suppliers. Some analysts worry the industry may be headed for mass liquidations as auto companies scale back production, and lobbying efforts are growing for the industry to secure at least $10B of TARP aid.
• Skipping out on Skype? Speculation is growing that eBay (EBAY) is getting ready to sell its Skype internet telephone division if it gets a substantial bid. Industry insiders point to comments by CEO John Donahue who called Skype a 'great stand-alone business' and admitted 'the synergies between Skype and the other parts of our portfolio are minimal.' eBay bought Skype in 2005 for $2.6B but has since admitted that it vastly overpaid for the business. Potential buyers could include Google (GOOG), AT&T (T) or Verizon (VZ).
• Losses sting at ING. ING Group (ING) will post a €3.3B ($4.27B) underlying loss for Q4, including €2B in losses from its structured credit portfolio, after what it called the worst quarter for equity and credit markets in over half a century. This is its second consecutive quarterly loss. The Dutch financial group will tap into €22B of Dutch state loan guarantees for its ailing portfolio, and will cut 7,000 jobs to save €1B of costs in 2009. CEO Michel Tilmant will step down, to be replaced by Board Chairman Jan Hommen, former CFO of Philips Electronics (PHG). Shares +19.0% premarket (7:00 ET).
• Tax case widens as UBS looks for settlement. Sources say U.S. prosecutors are expanding their tax case against UBS (UBS), and that the number of U.S. clients that UBS helped to avoid taxes is potentially much higher than the previously disclosed estimate of 17,000. Investigators are also looking into assisted tax evasion in other parts of the bank besides for the wealth-management unit. UBS is said to be in talks with the Justice Department to avoid a possible felony indictment by admitting to criminal conduct and paying a $1.2B penalty. UBS has publicly denied any wrongdoing.
• Tighter lending with TARP. Lending at major banks has fallen in recent months, despite large influxes of taxpayer money. Ten of 13 major TARP beneficiaries saw their outstanding loan balances decline by a total of around $46B from Q3 to Q4 2008, a 1.4% decline. Just three of the banks reported growth in their loan portfolios, namely U.S. Bancorp (USB), SunTrust Banks (STI) and BB&T (BBT). If TARP was meant to stimulate lending, 'it has failed,' says finance professor Campbell Harvey. "Basically we have dropped a huge amount of money... and we have nothing to show for what we actually wanted to happen."
• French banks create mega fund firm. French banks Societe Generale (SCGLY.PK) and Credit Agricole will announce plans today to combine major sections of their asset-management operations to cut costs. The joint venture will have around €700B ($909B) in assets under management, with a 70% interest going to Credit Agricole and the rest to Societe Generale. The JV would rank among the world's ten biggest asset-management companies.
• Business climate reaches new lows. The U.S. business climate is the worst in almost three decades. The National Association of Business Economics' [NABE] quarterly industry survey "depicts the worst business conditions since the survey began in 1982," with the majority of respondents expecting GDP to contract at a faster pace in 2009. 47% of respondents reported a fall in demand for goods and services, an all-time high. Job losses are expected to continue in the first half of 2009, notably so in sectors such as goods-producing, finance, real estate, transport, utilities and communications.

Earnings: Monday Before Open

• Covidien Ltd. (COV): FQ1 EPS of $0.76 beats by $0.06. Revenue of $2.46B (+6.1%) vs. $2.43B. (PR)
• Danaher (DHR): Q4 EPS of $1.11 beats by $0.07. Revenue of $3.18B (+1.1%) vs. $3.08B. (PR)
• Eaton (ETN): Q4 EPS of $0.98 misses by $0.06. Revenue of $3.49B (+3.3%) vs. $3.72B. (PR)
• Halliburton (HAL): Q4 EPS of $0.87 beats by $0.14. Revenue of $4.91B (+17.5%) vs. $4.82B. (PR)
• Pfizer (PFE): Q4 EPS of $0.65 beats by $0.06. Revenue of $12.35B (-4.1%) vs. $12.54B. (PR)
• Quest Diagnostics (DGX): Q4 EPS of $0.87 beats by $0.07. Revenue of $1.80B vs. $1.82B. (PR)
• Weatherford International (WFT): Q4 EPS of $0.53 beats by $0.01. Revenue of $2.63B (+20.2%) vs. $2.61B. (PR)
• Wyeth (WYE): Q4 EPS of $0.78 misses by $0.01. Revenue of $5.35B (-7.2%) vs. $5.79B. (PR)

Today's Markets

• Several Asia markets were closed today for local holidays. The Nikkei dipped down slightly (-0.8%) to 7,682.
• In Europe at midday, London +1.2%. Paris +1.3%. Frankfurt +1.2%.
• U.S. futures: Dow +0.6%. S&P +0.5%. Nasdaq +0.5%. Crude -0.1% to $46.43. Gold +1.4% to $908.

Monday's Economic Calendar

• 10:00 Existing Home Sales
  10:00 Leading Indicators
• Notable earnings before Monday's open: CAT, COV, DGX, DHR, ETN, FCX, GWW, HAL, KMB, MCD, SEE, TSN, WFT
• Notable earnings after Monday's close: AMGN, AXP, CNW, JEC, MCK, NFLX, OLN, PRXL, PTV, QLGC, SLG, STLD, TXN, VMW, ZION

Seeking Alpha editor Eli Hoffmann contributed to this post.

Much of the hype surrounding the Detroit Auto Show will be muted this year. Sales figures are miserable, the industry is coming to grips with the serious challenges it faces, and the Bush administration recently approved $17.4-billion in emergency loans to General Motors Corp. (GM) and Chrysler LLC.

Our prevailing overview for the automotive industry going forward can be summed up with one word: negative.

OPPORTUNITIES

In the midst of a downturn, why does the stock market typically recover before the economy does? Shouldn't we have to wait for employment to improve or for GDP to turn positive? That kind of clarity would make it easy on us but unfortunately that's not the way it works. The market recovers before the economy because confidence is the real driver of the market and confidence can be restored before the data improves. Confidence trumps economic data, it trumps technical analysis, and it trumps corporate earnings. Without confidence, a sense of despair sets in that turns the market into a sea of negativity that swallows up any sign of good news.

HOW CONFIDENCE WAS LOST

Q3 2008 Earnings Call Transcript

October 30, 2008, 10:00 am ET

Q2 2008 Earnings Call

July 30, 2008 9:00 am ET

Q1 2008 Earnings Call

April 30, 2008 11:00 am ET

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday May 9. Click on a stock ticker for more analysis.

McDermott (MDR), Foster Wheeler (FWLT),Wal-Mart (WMT), Liz Claiborne (LIZ), John Deere (DE), Hewlett-Packard (HPQ)

Cramer gave his viewers instructions on how to play earnings reports next week. He predicts MDR will give a lackluster earnings report after the bell and will take down FWLT, which is a buying opportunity. He would buy WMT before the open on Tuesday, and predicts the giant retailer will reach $60 by Friday. Cramer says LIZ is a sell and is years away from a turnaround. While Deere has been a winner, Cramer says it tends to be volatile on earnings, and would buy half a position before it reports on Wednesday and the other half after its report. While Cramer expects a great quarter from HPQ, he pointed to the company's history of giving back its gains, and would sell half before and half after earnings on Thursday. Even though HPQ is best-of-breed, Cramer doesn't like "old tech."

Visteon (VC)

Visteon is shedding its nickname "Victims' Club" and is quickly becoming "Victors' Club" as the Ford spinoff aggressively cuts costs. It is selling plants, cutting its workforce, and selling some unprofitable segments back to Ford. Analyst failed to pay attention to its stellar quarter when it reported a $51 million profit in the face of an expected $40 million loss. The company is diversifying beyond Ford and is selling to Hyundai, Nissan and other auto companies. Cramer emphasized VC is a speculative play, and noted one risk is its $2.8 billion debt. However, Cramer predicts VC will overcome this problem and may become the next Lear.

Continental Resources (CLR)

Cramer explained how he missed a double in CLR and what investors can learn from his mistake. CLR looked attractive to him in January when it was at $26, a 52-week high. Cramer kept waiting for it to descend to an optimal price, and was unsatisfied with two drops before it shot all the way up to $53.22. Now the company expects 48% growth and will continue to rise with oil. "There is not perfect pitch in this game," said Cramer, and told viewers that it is worth buying even a tiny position in a stock with a good story in spite of the price.

CEO Wall of Shame: Martin Sullivan, AIG (AIG)

Cramer thinks the CEO of the nation's largest insurance firm is so terrible, he devoted an entire annex of his Wall of Shame to Martin Sullivan. The company brought the entire market down on Friday when it reported an $8 billion loss and said it has to raise an extra $12 million. "This company is moronic and I don't trust a thing they say," said Cramer, "It's a disgrace." Cramer thinks the AIG's stock may jump as much as 20% if the CEO is fired.

Stocks discussed in the lightning round session of Jim Cramer’s Mad Money TV program, Tuesday April 8. Click on a stock ticker for more analysis:

Bullish calls:

Q4 2007 Earnings Call

February 14, 2008 9:00 am ET

This week's economic calendar kicks off Monday at 10 a.m. with Consumer Confidence. Tuesday we have GDP-adv. at 8:30 a.m. followed by the Chicago PMI at 9:45 a.m. and Crude Inventories at 10:30 a.m.

While the recent run-up in Crude prices has many looking for this week's inventories report the market will be waiting anxiously for Tuesday's 2:15 p.m. FOMC policy statement. General consensus amongst investors calls for a 25 basis point cut at the meeting. Wednesday at 8:30 we have Personal Spending, Core PCE Inflation and Initial Claims.

Detroit's part makers are starting to push back - and the timing can't be worse for the Big 3 automakers. The Wall Street Journal reports Navistar International Transportation Corp., which has made diesel engines for Ford Motor Co. for 30 years, cut off all engine shipments to its single biggest customer, the result of a monetary dispute. For years the Big 3 have been squeezing the parts makers when they needed to trim their own costs; now those days are ending as many of the parts makers have been driven into bankruptcy by money-losing contracts. Of the 10 parts makers mentioned in the WSJ piece, six are in Chapter 11 and a seventh is being kept out of bankruptcy by Ford. The non-bankrupt parts makers have stayed afloat through other businesses. There are several reasons the parts makers are in an improved bargaining position: bankruptcy has forced the Big 3 to back off on their demands for fear of losing additional supply sources; some, like Delphi Corp., have sought bankruptcy reorganization, in order to dump unprofitable contracts and excess labor/factories; private equity has intervened in some cases and said 'no' to unprofitable contracts for the sake of keeping up volume; finally, growing steel industry demand has given many parts makers additional pricing power when facing off against the Big 3.

Bullish calls: