S&P Cuts Automakers

S&P Cuts Automakers

Standard & Poor’s Ratings Services lowered its corporate credit ratings for three U.S. automakers today. Chrysler, Ford Motor (F, $5.37, down $0.44) and General Motors (GM, $13.19, down $0.60) were placed on “CreditWatch” with negative implications as S&P evaluates the damage being done by the slowdown in the auto industry.

Ford is getting a double whammy this morning as analysts cut their earnings estimates on the company following Friday’s news that the company was cutting vehicle production and is delaying the fall launch of the F-150 pickup truck by a couple of months. Ford is burning through cash and the road ahead will be bumpy. Although Chrysler and GM have not revealed their expectations for cash use, Ford plans to use more than $16 billion of cash over the next 18 months to adjust to these tough economic conditions.

Ford’s stock took a 7% hit Friday and is taking another 7% hit today. The June 6 puts have expired but the July 6 puts (FSI, $0.78, up $0.24) continue to see some action. They were trading for $0.47 on Friday and I mentioned if Ford falls below $5 within the next month, these puts will be worth at least $1.00. Today’s 50% gain “puts” us halfway there. Set stops at $0.70 if you managed to pick some of these up. Ford’s low is $4.95. So far, so good…

Rick Rouse
Rick@OptionsMentoring.com

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