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In Focus: Autos
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December 22, 2000: 1:17 p.m. ET
Efraim Levy, auto analyst at Standard & Poor's, comments on Ford, others
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NEW YORK (CNNfn) - U.S. automakers are scrambling to adjust to an expected economic slowdown. Some of their moves are traditional and/or seasonal, such as plant shutdowns. Others have been more drastic, including the announcement by General Motors Corp. that it would discontinue its longstanding Oldsmobile brand.
Standard & Poor's auto analyst Efraim Levy believes those moves, and others, have been made not a moment too soon. "It's time for automakers to tighten their belts and look for areas of inefficiencies and redundancies. They need to review what discretionary items can be eliminated," said Levy.
Levy discussed the plight of Ford Motor Co., and the U.S. "Big Three," with CNNfn, as follows:
CNNfn: Late yesterday Ford revised downward its first quarter 2001 North American production plan, cutting production by 9 percent. Did that surprise you? Is that a big number?
Levy: That's a nice-sized cut but right now I expect continued cuts in production throughout the industry as there's significant slowing, with the biggest decline concentrated in the Big Three automakers: General Motors (GM: Research, Estimates), Ford (F: Research, Estimates), and DaimlerChrysler (DCX: Research, Estimates).
CNNfn: Ford's announcement this morning follows production cuts by General Motors and Chrysler, and surveys are pointing to lower levels of spending by consumers. With the economy slowing, how ugly could it get for auto makers?
Levy: We're looking for light vehicle sales in 2001 of 16.1 million; that's down 8 percent from the record 17.4 million we expect to be sold in 2000.
CNNfn: What will Ford have to do in terms of cost cutting and operating efficiencies to stay ahead of the slowing demand curve?
Levy: It's time for automakers to tighten their belts and look for areas of inefficiencies and redundancies. They need to review what discretionary items can be eliminated. When you're used to higher production levels, it's hard when you get a sharp decline, but you have to remember that our expected figure of 16.1 million is the third-highest sales year, so it's a historically high number, which makes comparisons tough going forward, and you do lose margins as volumes decline.
CNNfn: Some analysts are expecting the industry to fall to an annual rate in the high 15 million to low 16 million range. Do you agree with those numbers?
Levy: Our official estimate is for light vehicle sales in 2001 of 16.1 million. As far as overall numbers, that's a reasonable ball park figure.
CNNfn: The company (Ford) is cutting its profit outlook by 10 cents per share from the present consensus estimate of 74 cents a share - and that's after cutting it's outlook by 10 cents on Dec. 1st. Does that concern you?
Levy: It concerns me but it's not unexpected at this point in the cycle, and given the market conditions, frequent revisions to earnings are not unexpected.
CNNfn: How is Ford doing internationally?
Levy: They cited that one of the factors they're cutting production in the quarter was part shortages outside of North America. Ford's operations in Europe have been weak.
CNNfn: Ford stock is down almost 5% this morning. What's your outlook for the stock?
Levy: The shares have been depressed this year and we have an avoid/underperform opinion on the stock. We expect it to underperform the S&P 500 in the next six-to-12 months. Some investors may be nibbling at the depressed shares; that's why we saw a bounce this morning.
CNNfn: What's your outlook for the automakers?
Levy: We currently have an "avoid" opinion on all the Big Three automakers. We're not recommending purchase of any auto parts suppliers in our coverage universe.
CNNfn: What are your favorite stocks in the group?
Levy: I don't have any favorites. We have a "sell" on Magna International, a Canadian auto parts manufacturer. About 70 percent of their business is to the Big Three, and they're cutting production, so Magna's earnings will be reduced also.
-- reported by Carmina Perez. Tanya Helenius contributed to this report. 
* Disclaimer
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