Ford Motor Co.'s and General Motors Corp.'s five-year credit default swaps tightened last week as both auto makers posted third quarter losses that did not exceed market expectations. Ford's CDS tightened 40 basis points to 620-625 after the auto maker posted a $5.8 billion third quarter net loss that matched Wall Street estimates. Ford's '31 bonds moved up half a point to 77 1/4. GM's CDS tightened 10 basis points to 465 after it posted an improved $115 million net loss, compared to a $1.7 billion net loss in the same quarter a year ago. GM's '33 bonds traded up a point to 89 5/8.
"The market was set for bad numbers. People expected a significant loss, but the fact Ford came within the Street's estimates of EPS was a positive," a dealer said. He added that if Ford continues to post poor figures in the next quarter, the market might start to view it less favorably. "It will be interesting to see if in the fourth quarter it is not getting better, people might start thinking it can't make it."
Ford posted a net loss of $3.08 per share. This compares with a $284 million net loss, or 15 cents a share, in the third quarter of 2005. On a pre-tax basis, Ford's global losses in the third quarter were $1.8 billion. Ford's North America auto operations were the worst affected. It reported a $2 billion pre-tax loss, compared with a pre-tax loss of $1.2 billion a year ago. The loss was attributed to lower production volumes and a lower market share.
Ford ended the quarter with $23.6 billion in total cash, which includes automotive cash, marketable securities and loaned securities. This did not change from the end of the second quarter. It reported $3.1 billion negative operating-related cash flow for the quarter. "The cash flow burn was not as large as the market expected," said the dealer.
Ford said during a conference call to discuss its results it is considering taking on secured financing. A spokeswoman said it would use the financing to fund cash flow for its restructuring. By the end of this year, it expects to have $20 billion in cash, she said, and significant negative cash flow over the next few years.
GM's net loss included $644 million in charges for special items, including a goodwill impairment at General Motors Acceptance Corp. and an increase to the charge associated with Delphi Corp.'s reorganization. The dealer said the market is expecting a settlement with Delphi over labor expenses to happen soon. A spokeswoman could not be reached.