GM leads way into downward spiral as auto anxiety soars

The Detroit auto industry appeared to be imploding Thursday.

Shares of General Motors gm stock hadn't traded so cheaply since the 1950s. Ford Motor f stock was at a 52-week low. Privately held Chrysler doesn't trade but still felt compelled to deny a rumor that it will file for bankruptcy protection.

GM led the way, hit hard by a downgrade to a "sell" recommendation from Goldman Sachs. The report set off a chain reaction that pulled down shares of automakers' parts suppliers as well. The entire industry — upon which 13 million jobs in the USA and 4% of the nation's GDP depend — took a beating.

Some of the ugliness was part of an overall stock market drop Thursday. The Dow was off 3%.

But most of the auto anxiety seemed be a reaction to bad news that's been building all week, combined with a kind of anticipatory panic — a stampede in advance of the June sales numbers due Tuesday.

That report's expected to be almost unbelievably bad, confirming fears that the spring plummet of the car and truck business in the USA has far from bottomed. Consultant J.D. Power and Associates is predicting June sales will calculate to an annual selling rate of 12.5 million, a breathtaking drop from a rate of 15.6 million in June 2007.

Edmunds.com, a respected auto information and shopping site, predicted Thursday that June sales would plunge 16.7% from a year ago. That would put June at an annual rate of 13 million.

The annual selling rate for the months so far this year has ranged from 14.3 million to 15.4 million, already almost guaranteeing a bad year. Full-year sales have been about 17 million most of the past decade.

A drop to 14 million from 17 million for the entire year would be the equivalent of closing a dozen big auto factories.

"There has never been a time in the auto industry like this," Van Conway, senior managing director of Conway MacKenzie & Dunleavy restructuring firm in Detroit, said Thursday. "Those are just shocking numbers."

Conway called current conditions "the perfect storm" for the industry. "The economy is in trouble, the credit markets are a mess, residential home values are destroyed, commodity prices are up, fuel prices are up and, in certain areas of the country, unemployment is up.

"Add that up," he says, "and you have to ask yourself, when in the past 30 years have we had all that happen at once?"

A litany of woes

Everywhere, it seemed, the boogeyman was popping out of the shadows.

Consumer Reports magazine said Thursday that its latest survey showed that 80% of Americans aren't planning to buy a new vehicle in the next year. Of the few who say they are, 0% — none, zip, nada — say they'll consider buying something much larger than they're driving now. That's bad news for Detroit, because it remains geared to build larger cars and trucks, even after recent scrambling to cut back on big ones and import or manufacture more little ones.

"You could say they should have built these smaller cars and more fuel-efficient cars, but nobody saw these gas prices coming a year ago," Conway says. "You can't create a car to deal with $5 gas in one year. The guys who had those cars kind of lucked out."

High fuel prices, he says, "pinch the pocketbook of America, and consumers are not going to buy any durables. No cars, TVs, houses, dishwashers."

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