Monday, November 06, 2006

Big 3 face Wall Street glare

Saturday, October 21, 2006
Big 3 face Wall Street glare
Third-quarter financial results seen as litmus test
Josee Valcourt / The Detroit News

DETROIT -- All eyes will be on Detroit's automakers next week as they detail third-quarter financial results that will serve as a barometer for each company's health in a brutal market.

Ford Motor Co., reeling under $1.44 billion in first-half losses, is expected to report a third straight unprofitable quarter next week as truck sales shrink and job-cutting expenses increase.

General Motors Corp. is expected to post a modest operating profit that could bolster Chairman Rick Wagoner's claims that a recovery is under way, particularly if GM exceeds Wall Street estimates.

DaimlerChrysler AG's otherwise solid performance will be dragged down by a $1.5 billion loss at the Auburn Hills-based Chrysler Group.

In a hyper-competitive market with each of Detroit's automakers facing lagging sales and production cuts, the stakes are high. Through September, the traditional American car manufacturers have seen sales drop nearly 10 percent, according to Autodata.

"GM is already back on track," said David Healy, an analyst with Burnham Investment Research. "Ford needs a break."

Ford is projected to lose 61 cents per share, compared with losing 15 cents per share for the third quarter a year ago, according to a consensus analysts' estimate calculated by Thomson Financial.

The third-quarter results will be the first financial results since CEO Alan Mulally joined the company on Oct. 1.

While it's too early for Mulally to have made his mark, "what people will be looking for is a sense that somebody is in charge, that there's a sense of credibility in that person," said James Brock, professor of economics at the Farmer School of Business at Miami University in Ohio.

Mulally is currently heading an effort to slash the company's North American work force by 44,000. Additionally, Ford is cutting fourth-quarter production by 21 percent.

Mulally isn't likely to convey any short-term optimism. Ford's third- and fourth-quarter earnings probably will be "extraordinarily weak," Bear Stearns analyst Peter Nesvold wrote on Oct. 4. "We remain apprehensive about owning Ford."

Thomson forecasts GM earned 49 cents per share during the third quarter, compared with a loss of $1.92 per share a year ago.

GM is trying to claw its way back into the black after losing $10.6 billion in 2005.

After rejecting an alliance with Nissan Motor Co. and Renault SA, Wagoner is under pressure to prove the company is on an upward trajectory.

Solid results could also give Wagoner leverage in his standoff with shareholder Kirk Kerkorian, who pressed for the alliance with Nissan-Renault and could launch hostile actions against GM's board.

"The jury is still out on GM's product turnaround, but its North American market share seems to have stabilized or even recovered slightly during 2006, especially if one makes allowance for the company's deliberate abandonment of much of its unprofitable sales to daily rental fleets," Healy said.

Additionally, GM should realize some benefits of its health care restructuring negotiated with the United Auto Workers.

"We expect a positive earnings surprise from GM. This is the first quarter of the full health-care benefit that adds roughly $1 billion to GM's earnings," said analyst Jon Rogers of Citigroup.

In spite of a steep loss expected at the Chrysler Group, Stuttgart, Germany-based DaimlerChrysler is forecast to earn 10 cents per American Depository Receipt, its U.S.-listed securities, according to analysts surveyed by Thomson Financial. In the same quarter a year ago, the company made 89 cents a share.

DaimlerChrysler announced in September that Chrysler would lose $1.5 billion in the third quarter, more than double the previous loss estimate, because of slumping demand for its SUVs and trucks. Chrysler is cutting production of its larger vehicles for the remainder of the year.

Analysts also are waiting to see the impact of difficulties besetting European Aeronautic Defence & Space Co. in which DaimlerChrysler has a sizeable stake. "We do have to assess the damage from the 33 percent associate EADS which is undergoing a rather thorough restructuring at the moment," said Citigroup analyst John Lawson in a recent teleconference.

American carmakers' problems bode ill for their parts suppliers, which will have to adjust to supplying fewer components through the rest of the year.

Auto suppliers also are struggling with high raw materials prices.

"We expect a fairly brutal quarter for auto suppliers," Rogers said.

American Axle & Manufacturing Holding is predicted to post a loss of 5 cents per share, and Lear Corp. could announce a loss of around 61 cents per share in their third-quarter reports.

Some suppliers may show gains, however. Johnson Controls is expected to report earnings of $1.85 per share and BorgWarner Inc. at 87 cents per share.

Bloomberg News contributed to this report. You can reach Josee Valcourt at (313) 222-2300 or

© Copyright 2006 The Detroit News. All rights reserved.


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