The U.S. credit downgrade and its impact on the Dow Jones and S&P 500 have scarred numerous major U.S. auto makers and dealers, reports Automotive News. As investors have dumped shares, an auto stock crash of significant proportions has occurred. General Motors, Ford Motor Co. and others have lost as much as 8.5 percent in share price.
Auto stock crash is widespread
By mid-afternoon Monday, the Dow Jones had fallen 3.5 percent to 11,044 and the S&P 500 was down 4 percent. These drops dragged General Motors stock down by 8.5 percent and Ford Motor Co. by 8.1 percent. AutoNation – America’s largest dealership chain – lost 5.3 percent of share value. Dealers Penske Automotive Group (6.8 percent), CarMax (7.6 percent) and Group 1 (6.1 percent) rounded out the tale of dealer woe.
Auto part suppliers were also thrown for a loop by the auto stock crash. Combined with the difficulty caused by the Japanese earthquakes and tsunamis of 2011, top performers on the S&P 500 were down more than 8 percent in early afternoon trading. Big individual losers included Magna Internation (7.6 percent) and the double-dip of Federal-Mogul Corp. and Meritor Inc. at a combined drop of more than 12 percent in share price.
Meanwhile, Dollar Thrifty Automotive Group Inc. (DTG) said second-quarter net profit rose 0.6 percent to $42.5 million from $42.3 million as revenue fell 0.3 percent. Dollar Thrifty also said it doesn’t yet have an agreement on any merger terms with either Avis Budget Group Inc. (CAR) or Hertz Global Holdings Inc. (HTZ), though it continues to cooperate with both.
Back to the drawing board
The latest auto stock crash has cast a pall over the recent gains in the auto industry and U.S. economy as a whole, notes Executive Vice President Sean McAlinden of the Center for Automotive Research in Ann Arbor, Mich.
“It’s tough to say how hard they’ll be hit by this decline, but it’s not good,” he said. “If we continue this slide and dip below 10,000 on the Dow Jones, we could be heading back to whence we came.”
McAlinden pointed out that as the overall market drops, demand for vehicles does the same.
“This would be a severe hit if demand falls back in the 11 million sales level,” he said. “That’s not good for suppliers and, once again, capacity and jobs would be cut.”
Falling commodities a silver lining
If anything good is to come from the new economic downturn and auto stock crash, a drop in commodity prices is it. Steel and aluminum prices are expected to decrease slightly, while crude oil is as low as it has been since November 2010.
The latter will be reflected in prices at the pump, which in turn will help offset the loss of revenue from a decline in vehicle demand. Yet as McAlinden warns, the waters will likely remain muddy for a while.
“A dollar-a-gallon plunge would leave a consumer confused in the midst of stock market uncertainty,” he said. “Everyone is going to have to sit tight for a week or two and see how this thing plays out.”
Jim Cramer on the ‘bloodbath’
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