January Car Sales - Horrible

Just when you thought it couldn't get worse for the auto makers, it did.  According to the Wall Street Journal "Sales by the Big Three US auto makers plunged to the lowest levels in decades."  The level is so demoralizing that the Journal has abandoned its usual effort to find the precise year that car sales were this bad.  So we're left wondering if the "lowest level in a century" is just around the corner, assuming, that the government is willing to keep supporting Detroit.

Chrysler's US sales fell 55% compared to January 2008, while General Motors sales were off 49%.  Ford managed to eek out a mere 40% decline.  These declines were steeper than expected and were blamed on sharply lower purchases by fleet operators as well as the inability of consumers to obtain car loans.  Industrywide, car sales were down 37% to 656,976 from January 2008.  Not only was this the lowest total since December 1981 but it was the first time that US sales were lower than in China.     

GM Posts $3.25 Billion Loss, Analysts and Investors Cheer

General Motors posted a $3.25 billion loss for the first quarter, a loss acquired in a multitude of creative and interesting ways. The following is a direct quote from the Reuters link "GM on Wednesday posted a first-quarter loss due to a costly supplier strike, waning demand for its most profitable vehicles and charges related to struggling former subsidiaries, although results beat Wall Street expectations." In summary, costs rose, revenues declined on lack of demand, and it had to take huge charges on its investment in GMAC, the finance unit. Perhaps the market is cheering that GM only owns 49% of GMAC having spun the balance off to Cerebrus Capital in a very well-timed move in 2006. That spin-off was initially orchestrated to protect GMAC's credit rating from GM's deteriorating financial situation, since GM cannot sell cars without offering financing to its customers. Ironically, GM has stabilized somewhat, while GMAC has been dragged down by its residential mortgage lending unit. Perhaps the market is celebrating the fact that GM's overseas sales were better than expected, although I'm certain this was due mostly to a weak dollar. Whatever the reason, GM is up on the news. Maybe by the end of the day, investors will notice that beating analysts estimates of some "core earnings excluding everything" number that may not even include car sales, is really not such a lofty achievement.

Kerkorian Accumulating GM Ford

After trying to unsuccessfully enact changes at GM three years ago, Kerkorian has turned his attention to Ford, acquiring a minority stake and bidding for 20 million shares at $8.50. This is arguably even better news than Ford's shareholders received last week when the company unexpectedly reported a meager profit of $100 million. Just the thought of Kerkorian's interest can cause a spike in the stock price, as some hedge funds learned the hard way when Kerkorian wreaked havoc on their bets by bidding for a stake in GM in May 2005. Hedge funds were long the bonds and short the stock in leveraged bets that were skewered when GM's stock unexpectedly spiked on news of Kerkorian's stake just a few days after GM's bonds were downgraded to "junk" by the rating agencies. Imagine attempting to explain to your investors how this "arbitrage" trade went awry.

Investor: How'd you lose all my bleepin' money?

Hedge Fund Manager: Um, So I was long the bonds and short.. oh never mind. We got kicked in the nuts and punched in the head at the same time.

Investor: Ok, yeah. That makes sense.

Kerkorian's interest in the auto industry isn't new or even recent. He was a big investor in Chrysler as well. He's been at this game a very very very long time. In fact, the most bullish part of this story is that Kerkorian is a nonagenarian who still wakes up every morning thinking about his next big deal while drinking his prune juice. I challenge you to find anyone who has more experience chasing auto deals than this guy. What does this mean for Ford investors? At a minimum, a short-term boost for investors that have had very little to cheer about in recent years.