Test-driving Big 3 stocks


Fall is the time to kick the tires of the brand-new models of the Big Three carmakers. It remains to be seen whether investors will similarly examine their stocks. Moving, as always, in a cyclical manner with the economy, these equities haven't equaled the performance of the overall stock market this year.

Investors realized that the economic recovery is going to be a slow one. Ford Motor Co.'s stock is up the most and General Motors Corp. is also showing a gain, while Chrysler Corp. is down in price. Price increases are a major worry for the 1992 model year.

"There's a potential for a miserable fourth quarter because of 'sticker shock,' as car buyers react negatively to dramatically higher prices," said Joseph Phillippi, analyst with Shearson Lehman Brothers, who expects money incentive programs to be introduced should that happen. "For example, the price of the new Pontiac Grand Am base model has increased by 17 percent, and that will make the consumer flip, even though basic features have been enhanced and production costs are up."

There is good news in the fact the foreign carmaker onslaught has cooled. "Right now imports have a 24.4 percent share of the U.S. market vs. a peak of 36 percent in 1986, and they don't seem to be making the inroads they once were," noted Douglas Laughlin, auto analyst with Bear, Stearns & Co. "The Japanese carmakers have suffered somewhat from slower U.S. sales, but the European carmakers have been hit hardest because their expensive luxury vehicles don't look as attractive during recession."

"One piece of positive news is that the American carmakers have been conservative and kept inventory levels low, currently at less than a 65-day supply level," explained Gurudutt Baliga, auto analyst with McDonald & Co. Securities Inc. "I'm looking for year-end sales figures of all U.S. vehicle sales, including trucks and imports, to be about 12.8 million this year, down from 13.8 million last year." Baliga predicts sales will improve next year to the 1990 level or slightly higher, to 14 million.

Stock of GM is currently recommended as a long-term purchase by all three analysts, while Ford and Chrysler receive only their neutral recommendations. Laughlin likes auto suppliers, such as Eaton Corp. Here, according to the analysts, are prospects of the Big Three:

GM is introducing attractive new models for the 1992 model year which should bring it good sales news. It has the industry's largest new product program in place over the next five years. The biggest carmaker also has a diversified earnings base, is in a good financial position vs. the other carmakers, and its European operations are profitable. The company's once "mistake-prone" management finally appears to be moving toward more efficient operations. Should the economic recovery be a shallow one, GM still has the potential to make a nice profit because of its production and manufacturing efficiencies. The company offers more of an earnings kick than the other two U.S. carmakers.

Ford's glory days may be behind it. Cars such as Crown Victoria, Grand Marquis, Taurus and Sable are success stories, but each year competition becomes tougher. Even though it is a world player, the company has had its share of difficulties in gaining momentum.

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