Ford

In a bid to preserve groupthink, and to finally let Getco off the hook from going chapter if GM's price were to ever drop below $33, JPM's Equity Derivatives desk led by Adam Rudd, who is recommending a trade based on Himanshu Patel's view that GM is massively undervalued, has just come out with a trade recommendation to buy GM March $38 calls funded by selling Ford $17 calls. After all can't let a government funded post-reorg story ever go to waste. And for JPM's functioning retard clients, here is the trade's explanation: "We believe that this trade may be particularly attractive for those investors who anticipate outperformance of GM relative to Ford." One quick look behind the scenes indicates that this call is nothing more than a less than glaringly obvious attempt to recreate the options trading frenzy seen in Ford stock in mid/late October in GM, now that Ford derivatives mania is over.

I say bunk!

Bloomberg's Erik Schatzker interviews Jim Chanos, in which the cynic notes that while not short BP, he has been short other majors (and likely making a decent profit doing so), for the very simple reason, which as we have been pointing out for almost a year now, namely that ongoing underinvestment in business, read declining maintenance CapEx and zero growth CapEx, will erode all revenue growth (and even stability). "If you look at their cash-flow statements relative to their income statements, you will see companies that haven’t replaced reserves in years, and haven’t seen any increase in revenues in years. They’re borrowing their dividend. They’re in effect liquidating." As we pointed out previously, one of the drawbacks of soaring cash levels is plunging CapEx: this is happening across all companies in the S&P, not just exploration, although the effect will be drastically magnified in this space, and we completely agree with Chanos that his short is spot on. Chanos also discloses his additional shorting of Ford: "It’s going to be very interesting to see how it is that the union, which controls the employees -- and I contend these entities are still run for their employees and retirees more than the shareholders -- are going to look in an environment going forward, where the UAW is a major equity holder in some of the other entities. It adds a new dynamic to the twist.” Jim Cramer, if you are reading this, you may reconsider your favorite long. Lastly, as expected, Chanos discusses his China shorts and how he puts those on in a country which is not very shorting friendly, to say the least.

Just when you thought the US auto industry is doomed, the Mullaly brain trust comes up with this idea of unsurpassed brilliance. Even Steve Rattner can't help but applaud in uncharaceteristic profanity-free silence.

Ah, the perils of not being totally broke. Ford labor unions rejected contract changes that would have allowed Ford, the healthiest of the "Big Three" to cut labor costs consumate with its bankrupt domestic competitors. Even if the competiton is broke... Sometimes, bankruptcy has its benefits.

While no one is drinking around the Cash for Clunkers punch bowl anymore, even the fittest and healthiest of domestic players are slumped, hungover.

So Does the Future Look as Good as the Past? Not in a million years. The Bubble fuelled car sales numbers of 2000-2007 now look to be permanently relegated to the rearview mirror. Since March 2009, amidst all the cries of a V-shaped economic recovery and a booming stock market, car sales have lagged badly. For almost all months of 2009, with the exception of July and August U.S. car SAAR has been stuck in the mid to high 9’s, their lowest levels in a decade. Now that the July-August cash for clunkers is gone, car sales are trending back to their low 9’s trajectory.

Could the impact of Cash for Clunkers have been materially overestimated? Based on the results from Ford, it would seem so, as the high expected SAAR of 15-16 million is now looking more and more like a mirage. Goldman Sachs is expecting a 15.5 MM SAAR for August, and yet they were betting on a 39% increase in Ford sales YoY, falling woefully short of the actual number which was a just announced 21%. What is much more interesting, is where Chrysler numbers will come out: Goldman is expecting a 5% increase in sales, yet a note out of AP quotes an insider saying that August sales were a 15% drop for the Fiat subsidiary.

And no, the 38th president of the US is not set on a transdimensional spree to save the US financial system from beyond the void (although it would be so poetically fitting).

Total Ford, Lincoln and Mercury sales totaled 125,107, down 41% from last year and higher 30% than February (GM's numbers should more than make up for this lack of slack).
Aslo it seems all those stupefying Volvo commercials aren't helping: only 6 thousand of Scandinavia's finest sold in March. The biggest hit by category was SUVs which was down 73.2% (-77.8 drop in Expedition and -69.8% drop in Explorer sales), as compared to cars (-36.6%), CUVs (-35.9%), and trucks and vans (-40.2%).

The only US automotive company not to be on the taxpayer's payroll, Ford, earlier announced it would pursue a proactive debt for equity and cash exchange in which it would convert up to $10.5 billion of its $25.4 billion in debt at year end. The exchange is in fact a combination of three separate transactions:

The only US automotive company not to be on the taxpayer's payroll, Ford, earlier announced it would pursue a proactive debt for equity and cash exchange in which it would convert up to $10.5 billion of its $25.4 billion in debt at year end. The exchange is in fact a combination of three separate transactions:

In line with apocalyptic expectations and with a roughly 9.5 million SAAR, Ford reports car and truck sales down to 99,400 from 192,799 a year ago. "Industry sales at these levels make it more challenging for GM a Chrysler to become profitable and pay back $17.4 billion in U.S. loans." At the end of February, Ford, Lincoln and Mercury inventories totaled 405,000 units. Inventories are 32 percent lower than a year ago. Ken Czubay, VP of sales and marketing says:

In line with apocalyptic expectations and with a roughly 9.5 million SAAR, Ford reports car and truck sales down to 99,400 from 192,799 a year ago. "Industry sales at these levels make it more challenging for GM a Chrysler to become profitable and pay back $17.4 billion in U.S. loans." At the end of February, Ford, Lincoln and Mercury inventories totaled 405,000 units. Inventories are 32 percent lower than a year ago. Ken Czubay, VP of sales and marketing says:

Just what the auto industry needs: Ford, which may have foolishly avoided government aid so far, announced U.S. auto sales in February fell even more compared to January, when the annualized sales rate was the lowest since 1981. Ford sales analyst George Pipas also had this bleak comment to share "We don’t know where the bottom is." January's SAAR was 9.6 million and February numbers which comes out next week should further cement the case that U.S. automakers are simply unviable in current form.