Investors in the big U.S. car companies felt Detroit's pain Friday.
Shares slid sharply across the board as shareholders worried that even with sharp cutbacks in place at two of the so-called Big Three automakers, many, many more hits are yet to be taken.
shares were hammered hardest Friday, dropping 12% after the company rolled out the latest twist in its Way Forward restructuring plan. The teetering automaker says it will cut salaried staff by a third, or 14,000 jobs in all. It also offered buyouts to all 75,000 union employees to help accelerate its previous goal of eliminating as many as 30,000 hourly jobs.
But despite the massive cuts, the company warned that it doesn't expect to turn a full-year profit on its core North American car operations till 2009.
The news comes as
cut its 2006 profit outlook due to weak U.S. sales. The German auto giant says operating profit for the year will likely be $6.4 billion, down from the $7.7 billion guidance it gave in July. Daimler shares dropped 7%.
has also been grappling with significant turnaround challenges. The No. 1 U.S. automaker reported a second-quarter loss of $3.2 billion, or $5.62 a share, due to huge restructuring charges.
"Conventional wisdom is that you can't turn a ship as big as GM around quickly," General Motors said at the time. "We aim to prove that conventional wisdom wrong."
GM shares have been the lone bright spot in the domestic car industry this year, having risen 70% for 2006 amid prodding from investor Kirk Kerkorian. But they, too, fell Friday, dropping 3%.
The sectorwide selloff says Wall Street isn't optimistic about the group's direction.
"The business is heading south fast, and it's ironic that the trouble is happening in what most people describe as a healthy economy," says a Boston-based money manager with no positions. "I think the restructuring taking place will not take place without the equity holders and employees seeing much more pressure."
The big car companies had previously been able to sidestep major troubles through gimmicks like zero-percent financing and employee discounts. And when rivals like
grabbed an increasing share of passenger-car sales, the Big Three found relief in high-margin SUV and truck sales.
But high overhead costs, higher fuel prices and unpopular cars have started to catch up with the big automakers like Ford.
"While we are pleased to see greater cost reduction and more acknowledgment of the reality and gravity of the situation, we remain concerned that current results are worse than we think," Morgan Stanley analyst Jonathan Steinmetz wrote in a note Friday. Steinmetz has a neutral rating on Ford.
For some investors, the trend seems to point to a very gloomy near-term scenario.
"It looks like we will see a collapse followed by consolidation," says the Boston money manager. Ultimately, predicts the investor, "the industry is reborn in Asia."