A pair of auto analysts remains negative on the Big Three automakers, while one investor says he is becoming slightly less bearish on the sector. The less-than-enthusiastic comments come despite strong U.S. auto sales numbers last week, and indications that manufacturers will begin scaling back price incentives.
One bulge-bracket sell-side analyst sees particularly disturbing signs for Ford Motor Co., with fierce competitive tactics from General Motors to cut into Ford's F150 moneypie. A potential Ford downgrade to junk status is also still a real possibility, he says. "I think you have a lot of portfolio managers out there saying, 'I can't afford to own it and have it go non investment-grade, because the forced selling would exert tremendous technical pressure," he adds. A Midwest buy-side analyst is equally unimpressed by the sales numbers, pointing that they were highly incentivized, and that Ford and GM lost market share to foreign competitors.
Dan Portanova, portfolio manager of $150 million in taxable fixed-income at Gartmore Global Investments, is considering moving up to a neutral position versus his peers in Ford and GM. Overall positive sentiment on the corporate bond market and reduced pension funding obligations due to higher interest rates are potential boons to the sector, he notes. Gartmore may add up to $5 million to two issues it already owns, but no more, Portanova says, as he still worries about the companies' heavy debt burdens. Gartmore's Ford 6 7/8% notes of '06 were trading at 242 basis points over the curve last Thursday, while its other position, the GM 7.10% notes of '06, were trading at 225 off.