At least one portfolio manager and one sell-side analyst agree that the bonds of auto issuers are more likely to get cheaper than they are to rebound any time soon. Rance Duke, portfolio manager at Fort Washington Investment Advisors in Cincinnati, recently sold Daimler Chrysler 8.5% notes of '31 at 215 over the curve. He believes car companies will be forced to continue issuing new debt to pay for their incentives programs. Pressure from foreign competition and labor contracts that make factory closures impractical give car companies few business options, says Duke. The portfolio manager says that while he is underweight autos, he would continue to sell off-the-run paper, particularly that of General Motors if he receives an attractive offer. He has already sold most of his Ford Motor Co. and Daimler bonds, he says.
While the sell-side auto analyst is more sanguine, he says there is no incentive for portfolio managers such as Duke to get back into Ford until spreads tighten another hundred basis points. Ford's 7.25% notes of '11 were trading at 405 basis points over Treasuries last Thursday morning. He argues that 0% financing incentives will not be as costly as investors assume, however, because they are only available for short-term car loans with high monthly payments. He continues to rate Ford's bonds "attractive" on a long-term basis. He has a "hold" on Daimler Chrysler, and argues that GM could be hurt by a possible strike by Canadian autoworkers.