Friday, November 23, 2007
Auto stocks take longer to recover because more risk is perceived, one analyst said.
By TOM KRISHER
ASSOCIATED PRESS
DETROIT — Shares of Ford Motor Co. and General Motors Corp. dropped to below or near their 52-week lows Wednesday, but GM recovered on news that its former financial arm may sell parts of its struggling mortgage business.
Several industry analysts said the bump auto stocks received as a result of new lower-cost labor agreements with the United Auto Workers has been erased in recent weeks by investor concerns about waning consumer confidence and potentially tighter credit.
“Right now people are scared. There are reasons to be scared,” said Efraim Levy, a senior industry analyst with Standard & Poor’s. “There are fears that consumers are getting tapped out and either will be afraid to or won’t be approved to borrow money for buying vehicles.”
Ford shares dropped as low as $6.87 on Wednesday, just above its 52-week low of $6.85. But they recovered to $7.04 by mid-afternoon, down 20 cents, or 2.8 percent, from Tuesday’s close.
GM shares tumbled as low as $24.50 on Wednesday, well below the previous 52-week low of $25.50. But they recovered by mid-afternoon to $27.18, up 89 cents from Tuesday’s close, as GMAC’s Residential Capital LLC announced it had hired advisers to explore the possible sale of certain parts of its operations among other options. The last time GM stock dropped below $25 was June 13, 2006.
GM last year sold 51 percent of its GMAC financial services operation to Cerberus Capital Management LP. ResCap, GMAC’s mortgage operation, lost $2.3 billion during the third quarter as borrowers missed mortgage payments.
Kevin Tynan, a senior automotive analyst with Argus Research Corp., said auto stocks are being pulled down with the overall market, which dipped ahead of Thanksgiving on worries about the wilting mortgage market.
Broader economic concerns have investors unwilling to buy at present, even though Ford and GM have better fundamentals than a year ago due in large part to the recent cost-saving labor agreements with the UAW.
Auto stocks, Tynan said, will take longer to recover than the broader market because investors perceive Ford and GM to have more risk. But once they drop to what investors consider bargain prices, the money should come back, Tynan said, especially as cost savings from the union contracts begin to kick in next year and beyond.