GM, Ford shares rally more on loan prospects
General Motors Corp and Ford Motor Co shares rose on Friday as industry analysts said they expected carmakers to get at least partial access to a $25 billion loan program from the U.S. government.
By Agencies |
DETROIT: General Motors Corp and Ford Motor Co shares rose on Friday as industry analysts said they expected carmakers to get at least partial access to a $25 billion loan program from the U.S. government.
GM shares were up as much as 12.2 percent to $14.31 in morning trading, adding to a sharp jump on Thursday. The stock has risen from a 54-year low of $8.82 set in mid-July, when the automaker was preparing an accelerated restructuring plan.
Ford shares were up as much as 6 percent at $4.96. U.S. lawmakers included a provision in the 2007 energy bill to provide $25 billion of government-backed low-interest loans to support investments in advanced technology by carmakers and parts suppliers. But for the industry to access the financing, Congress must pass a provision for $3.8 billion of funding to cover the default risk.
"We think the plan has the potential to be significant," Goldman Sachs analyst Patrick Archambault said in a note to clients, adding that the timing and qualifications for the program were still unclear.
"But we would expect a short-term rally in auto shares if an appropriations bill were passed, particularly at GM, where liquidity concerns are highest," he said.
Archambault said the industry was more likely than not to get at least partial funding for the loan guarantees before Congress adjourns for the October recess before the election.
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U.S. House Speaker Nancy Pelosi told reporters on Thursday that Democratic leaders would like Congress to approve the $3.8 billion of funding before the end of September. GM Chief Executive Rick Wagoner was in Washington on Friday to press for the program, and Chrysler President Jim Press told reporters that carmakers were lobbying independently on the issue.
"We see a 50 percent probability that funds will be appropriated in 2008 and a higher probability in the first half of 2009 absent action this year," Lehman Brothers analyst Brian Johnson said in a note to clients. Johnson said GM stood to benefit most from the program, potentially meeting half of its cash needs through 2009, or about $3.7 billion out of $7.3 billion.
Ford could raise about $2.2 billion through the program, but does not require external financing, he said. Designing vehicles that meet the loan criteria should be doable for Ford and GM, but more challenging for Chrysler [CBS.UL], Johnson said.
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Last year's energy bill mandated increases in fuel economy standards, as well as the largely publicly overlooked provision for loan guarantees to help cover up to 30 percent of the cost of projects to produce advanced vehicles, Johnson noted. Archambault sees a good chance the funding provision would be enacted in 2009 if the effort falls short this month, but a number of developments could change that scenario, including the outcome of the presidential and congressional elections, the state of the U.S. economy and auto industry finances, and gasoline prices.
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Goldman still rates GM shares at "sell" and Ford at "neutral," he said, with the impact of global industry demand, pricing and material costs likely to keep worsening. In the auto parts sector, Lehman's Johnson said Tenneco Inc and BorgWarner Inc could borrow the most because of their focus on fuel-efficiency, but the amounts available to suppliers would be dwarfed by those to automakers. GM shares were up 7.5 percent at $13.70 in midday New York Stock Exchange trade, while Ford rose 5.3 percent to $4.93.
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