Ford, GM could become penny stocks before long
Shares of Ford Motor Co. and General Motors Corp. continued their nosedive Wednesday, making it harder for those companies to raise cash and renewing concerns about the future of Detroit's automobile industry.
Ford shares dropped 8.9 percent Wednesday to close at $2.66. Even accounting for splits and inflation, that is the lowest level since 1985. Shares in GM fell 8.6 percent to close at $6.91 -- a price not seen since 1953.
The dizzying decline has dramatically reduced the value of both companies. It has cut the earnings of white-collar workers who are compensated in part with stock options. The drop in share prices also makes it more difficult for both to trade stock for cash. It definitely limits their ability to do debt-equity exchanges," said analyst Eric Selle of JPMorgan. "That's their easiest way to get cash." GM did a debit-equity swap worth nearly $322 million last month. Selle noted that Ford has done four in the past nine months -- a fact that he said has likely contributed to its weak share price.
"They're basically diluting their own stock," he said.
Neither company needs to raise more cash in the near term, but Selle said this removes one of the few remaining mechanisms they have to do so. The broader credit crisis and recent downgrades by Wall Street rating agencies have seriously limited both companies' ability to borrow money.
A decade ago, GM was the largest company in America. Ford was the second, as ranked by Fortune magazine.
Today, toy carmaker Mattel Inc. is worth almost $2 billion more than GM. Mattel's market capitalization -- the value of all its outstanding stock -- is $5.81 billion. GM's is worth $3.91 billion. Motorcycle maker Harley-Davidson Inc., with a market capitalization of $6.83 billion, is worth more than Ford, which was worth just over $6 billion at end of the trading day.
Over the past five days of trading, GM has lost nearly 27 percent of its value. Ford has lost more than 41 percent. That has dealt a massive blow to the Ford family fortune, not to mention the investment of billionaire Kirk Kerkorian. Detroit News