As I have been saying for the last few years, the auto sector in the U.S. and around the world remains terrible; it’s a bad place to have placed your capital. Even with the recent decline in stock prices of automakers to decade lows, we are still not buyers and will not be in the near future. General Motors Corporation (NYSE/GM) recently fell to its lowest point since the 1950s. Its current market- ap is a mere $3.7 billion, which is quite amazing given the company once was the darling of Wall Street and the institutional crowd, and has long been considered a “widow” stock with a nice dividend. That was then. I would not touch GM. Its current ividend yield of 15.30% looks attractive, but stay away, as it is
based on a weak stock price. And given that GM has about $23.0 billion in net debt, it would not be a surprise to see management cut the dividend out partially or entirely to economize.
Now some of you may be looking at the distressed auto sector and wondering if it is time to enter into positions. Our advice is a sound “No.” The sector is struggling with declining demand and the need for a major industry restructuring. Major car dealers are offering no interest financing, yet even this is having some problems in attracting buyers given the economic uncertainties. Even Japanese automakers are cutting estimates for car sales and you know this is a major red flag.
News circulated today that billionaire investor Kirk Kerkorian cut his holding in troubled Ford Motor Company (NYSE/F) to 6.1% and added that he could divest his remaining interest.
If you are thinking of investing in auto stocks, stay out. Auto part companies may make more sense given that people will need to fix their used vehicles more if they decide to stay away from new purchases. Even so, you need to be careful, as auto parts to OEMs will also decline.