GM, Ford try to calm investors’ jitters

Published 9:47 pm Wednesday, June 8, 2011

General Motors and Ford are trying to reassure investors that their sales and profits will keep growing despite a weaker U.S. economy and slower auto sales

Carmakers have been hit with a string of bad news this spring, from the March 11 earthquake in Japan that left dealers short on cars to rising gas prices and unemployment. U.S. auto sales fell in May, their first monthly decline this year.

The news has hurt. GM’s shares have lost almost 13 percent of their value since selling for $33 per share in a public stock sale last November. Ford’s stock price, meanwhile, has fallen more than 9 percent since the start of May.

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On Tuesday, GM’s CEO highlighted the company’s healthier finances at its annual shareholder meeting in Detroit, while Ford unveiled an expansion plan to investors in New York. The message was the same: The companies’ turnarounds remain on track following years of struggle and, for GM, bankruptcy.

“The bankruptcy, as difficult as it was, may have been not only a second chance, but a rebirth of a great 21st century global manufacturing company that is no longer burdened by the past,” GM CEO Dan Akerson said.

The messages seemed to take. GM shares rose 1 percent to close at $28.78, while Ford’s rose slightly to close at $13.95.

Jeffries auto analyst H. Peter Nesvold said larger economic worries have been overriding many companies’ performance in recent weeks, including GM and Ford.

“It makes it very difficult for companies executing well to get recognition for it,” he said.

Akerson said he isn’t worried about GM’s slumping stock price. The company has performed in line with its competitors, all of which have seen stock declines in recent months. Akerson recently spent $940,000 of his own money to buy 30,000 GM shares, a gesture executives often use to boost confidence in a company.

GM has many strengths, he said, including a “fortress” balance sheet with $36.5 billion in cash and available liquidity, and only $5 billion in debt. The company’s senior management team also has the right mix of GM experience and outside perspectives, he said.

Shareholders elected all 11 current members of the board and approved Akerson’s 2010 pay package, which was valued at just over $2.5 million for his four months of work as CEO.

Nesvold said Ford had taken a hit from some investors for not presenting a clear plan for growth in emerging markets. Ford tried to reverse that by announcing it will increase global sales by 50 percent by the middle of this decade, mostly through growth in Asia. Ford sold 5.3 million vehicles last year, and hopes to sell 8 million in the next five or six years, with a one-third of sales coming from fast-growing economies in Asia.

“We think it’s really important that the investors understand that we have a plan. The plan isn’t just ‘survival,” Chief Financial Officer Lewis Booth said in a phone call with media before the investor meeting began.

Nesvold said Ford’s plan is particularly impressive because it calls for increasing profit margins even though it will lower its car prices by $1,000 to $2,000 in some emerging markets. Ford can do that because it has cut costs by selling cars globally instead of designing different cars for different regions.

Analysts have been concerned that Ford is lagging behind rivals like GM and Volkswagen in Asia. It controls less than 3 percent of the market in India and China. The company said it will expand its offerings in India from three cars to eight by the middle of this decade, and will add 10 cars to its lineup in China.

Ford reported a $2.6 billion profit in the first quarter, its eighth straight quarterly profit, while GM earned $3.2 billion for the quarter. But that hasn’t kept investors from getting skittish, particularly about the fragile economy, the rising cost of steel and other raw materials, high gas prices and tough competition from Hyundai Motor Co.

In addition, Japanese automakers didn’t have enough cars to sell last month because of shortages caused by the earthquake, but they’re sure to offer big promotions once their supplies come back, putting pressure on GM and Ford.

George Magliano, an analyst with IHS Automotive, said both companies still have a lot to prove. GM has established its global footprint; it controls 14 percent of the market in China, for example. But he said the company has seen a lot of instability in its executive ranks — Akerson is GM’s third CEO in two years — and needs to get more good small cars like the Chevrolet Cruze into the market.

Ford, he said, has solid leadership in CEO Alan Mulally and ambitious growth plans, but it will need to show results.

“Mulally’s righted the ship in North America, but now he’s really got to address the needs in the rest of the world,” he said.