March 17 (Bloomberg) -- General Motors Corp. kicked Wall Street in the teeth with downward earnings guidance yesterday, prompting Ford Motor Co. to reassure investors that its financial performance remains on track. Ford's position and prospects, however, are only marginally better than those of GM. The two biggest U.S. automakers are in the same pickle: Their vehicles -- especially cars -- aren't selling well. And the financial cushions of both automakers have been eroded by the weak prices commanded by their models, further aggravated by the same high costs, particularly for health care. The creditworthiness of both automakers is rated BBB- by Standard & Poor's, one notch from ``below investment grade'' or junk status. S&P lowered GM's outlook yesterday to ``negative,'' suggesting a downgrade to junk status is possible, while maintaining Ford's rating at ``stable.'' ``The market is not getting easier and we certainly face many challenges, but we are maintaining our full-year earnings guidance, although we expect to be at the lower end of the range,'' Don LeClair, Ford chief financial officer, said in a statement. GM's warning knocked its stock down by almost 14 percent to $29.01, a 12-year low, dragging the entire auto sector lower. Sales, Sales, Sales The heart of the problem for both companies is sales in their home market. For the first two months of 2005, GM's U.S. sales were off 9.9 percent and its market share slipped to about 25 percent from about 27 percent -- dropping it to a low for the modern era. Ford sales were off 7.4 percent, with its market share barely clinging to 20 percent, down fractionally from last year. Sales of conventional passenger cars now comprise 43 percent of GM's sales and only 36 percent of Ford's sales, by unit volume. Both automakers staked their futures in the 1990s by investing heavily in pickup trucks and variants, such as large sport utility vehicles, built from pickup truck architectures. Pickups and large SUVs looked like a better bet, because they were contending with minimal competition from Japanese automakers like Toyota Motor Corp. and Honda Motor Co. GM and Ford thus gave cars short shrift, so Ford now is trying to catch up with new models like the Ford Five Hundred, while GM introduces the Pontiac G6, Chevrolet Cobalt and Buick Lacrosse. Both companies hope these models will sell well, though it's still too early to know. The Pickup Scene There's no mystery about GM's workhorse GMT 800 pickup truck chassis -- the basis for the Chevrolet Silverado and GMC Sierra pickups and big SUVs like the Chevrolet Tahoe. It's old and in need of replacement. New GM truck models based on the GMT 900 begin to arrive next spring; until then, GM probably will have to heap profit-eating discounts on its pickups. Ford's pickups could be in an even scarier predicament. The F150, Ford's most important single model, is less than two years old and 2005 sales are running 15.6 percent lower than last year. ``No doubt we took our foot off the incentive pedal in January and February for F series,'' said George Pipas, Ford's sales market analyst, who forecast a rebound in F series sales. Worse still for both automakers, Toyota Motor Corp. in 2006 will open a new pickup truck plant in San Antonio and introduce a new version of its Toyota Tundra pickup model. Honda is rolling out its Ridgeline midsize model, which could steal a few sales at the margin. Less Emphasis on Rebates The risk of Detroit's 1990s strategy, which emphasized investing in new trucks at the expense of cars, is now evident. Toyota and other Japanese automakers now have big pickups and big SUVs of their own, which depress prices in those categories, even if they aren't produced in enough volume to erode Detroit's sales significantly. Jim Sanfilippo, an automotive marketing analyst based in Warren, Michigan, thinks Ford might have an advantage over GM with its determination to switch faster to pricing models close to their actual value, and thereby rely less on rebates and discounts. ``Every new launch should get to transaction pricing faster,'' he said. GM said yesterday that it, too, intends to rely less on rebates and will try to set retail vehicle prices closer to the actual anticipated transaction price. Ford and GM remain hated competitors. Ford executives quietly seethed when the press and Wall Street were abuzz over the hiring of Bob Lutz as GM's new vice chairman. Lutz, a longtime veteran and onetime Ford executive, was supposed to bring pizzazz to GM's vehicles. Ford was recovering from the nightmare of overturning Explorers and exploding Firestone tires. Now that Lutz's hiring evidently hasn't been enough to cure GM's ills and with its whacking yesterday, Ford executives are discreetly laughing. Who, besides Toyota, may get the last laugh? To contact the writer of this column: Doron Levin in Southfield, Michigan at dlevin5@bloomberg.net. To contact the editor responsible for this column: Bill Ahearn at bahearn@bloomberg.net. Last Updated: March 17, 2005 00:21 EST http://quote.bloomberg.com/apps/news?pid=10000039&sid=aW9YuSkpWau4#
