Auto Stocks Plummet as Ford and Chrysler Announce Production Cutbacks

Strategic Insights -

Ford Motor Company's sudden decision to extend the shutdown of its Windstar mini-van and Escort small car factories has sent shockwaves through the automotive industry, with investors voicing concerns that auto sales may be flagging. The news comes on the heels of Chrysler Corporation's announcement that it is expanding rebates on its Neon subcompact cars, which have been struggling to meet sales expectations. While Ford executives maintain that production cutbacks are a response to declining dealer orders rather than weakening consumer demand, investors remain skeptical.

Key Takeaways:

  • Ford Motor Company may extend the shutdown of its Windstar mini-van and Escort small car factories beyond the initial one-week period.
  • Chrysler Corporation is expanding rebates on its Neon subcompact cars, which have been selling poorly.
  • The production cutbacks announced by Ford and Chrysler have sent auto stocks plummeting, with Ford's shares falling $1.125 to $26.375 and Chrysler's shares ending at $47.125, down $2.125.
  • The strike at General Motors' parts complex in Flint, Mich., which has halted assembly of over two dozen car and light truck models, has also contributed to the decline in auto stocks.
  • Analysts predict that auto makers may have to cut prices to stimulate sales, with some expecting Chrysler to introduce a $500 rebate or other incentive to its mini-vans within days.
  • Ford's general manager, Ross Roberts, stated that the production cutbacks may not be enough to balance out supplies, and that the company may take another week to produce Windstars.
  • Ford dealers have seen no slackening in demand, but some are preparing to cut inventory due to rising interest rates.
  • The high cost of carrying large inventories has become a significant problem for dealers, with a 1 percent increase in the prime rate raising their costs by $5,000 a month.

Statistics:

  • Ford's shares closed down $1.125 to $26.375.
  • Chrysler's shares ended at $47.125, down $2.125.
  • General Motors slipped 75 cents to $39.50.
  • The Neon rebates at Chrysler amount to $400 to $600 a vehicle, or lowered financing rates.
  • Ford dealers have 200,000 more cars and trucks in stock than they did a year ago.

Sources:

  • "Ford May Stay the Windstar Line Longer" by, Betty Gilmartin, The New York Times (no date)
  • "Ford May Extend Windstar Shutdown" by, Christina Mullen, The Wall Street Journal (no date)
  • Statement by Ross Roberts, general manager of the Ford division.
  • "Detroit Worries Wall Street" (Caption), The New York Times (no date)
  • Graphs: "Detriot Worries Wall Street" (Caption), The New York Times (no date)