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High oil = bankruptcy for auto makers and airlines?

Posted Mar 11 2008, 08:53 AM by Douglas McIntyre
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Several companies in the airline and auto sectors could face bankruptcy this year with American Airlines and Ford at the head of the list

American Airlines dropped 10% yesterday to hit $10.20. The shares have not been at that level since 2004. American lost money three of the last five years. It had a small net profit in 2007 of just over $500 million on $22.9 billion in revenue. The margin is razor thin.

In 2007, American also had interest expense of over $900 million. Long-term debt is about $9.4 billion.

In an industry which is as well-known for its bankruptcies as it is for its bad food, 2008 is shaping up as a truly awful year. Fuel prices are rocketing as oil passes above $107 a barrel. The recession is likely to put a drag on passengers, both business and pleasure. The $500 million that American made last year could turn to a loss of several billion in the blink of an eye.

The situation in the auto industry is as bad, for many of the same reasons, especially high oil prices which have gas at almost $3.50 and a market where customers will wait one more year to buy a car because they are as poor as church mice.

Shares in Ford fell to $5.58 yesterday. In early 2006 when several credit analysts said Ford might have to seek bankruptcy protection its share were higher than they are now.

Ford is going to be squeezed and squeezed hard this year. Commodities costs for car components are rising rapidly. Lehman Brothers has estimated that this could add over $350 to the cost of each vehicle. Ford and other car companies cannot get buyers into dealers, even with large incentives. The U.S. car industry could lose over one million domestic unit sales compared to 2007 -- over $25 billion in revenue. Twenty percent of that could come from Ford based on its market share and the rate at which its sales are dropping.

The Ford family will obviously resist any effort to take the firm into bankruptcy, but if the price of building a car moves much higher in the second half and sales are off 15% in North American for 2008, the choices may come down to one.

Comments

 

Why has the stock of AMR the parent company of American Airlines on the steady decline? I will tell you the TRUTH................Its called the perect storm. All three unions at AA are in negotiations, TWU,APA,APFA. The employees have given back billions in concessions to keep them out of bankruptcy in April 2003. And just when contract time comes up the fuel prices sky-rocket, What industry uses the most fuel?  You have to ask youself one thing is this just coincidence, or is it just another Union busting tactic, Does our government help create disasters? Housing, Auto Industry, PBGC, FEMA...............They all go hand in hand.

Service on domestic airlines is among the worst in the world. If they go bankrupt or even out of business so much the better. Then allow foreign airlines, particularly those from Asia, to take over and we will be back to the kind of service we used to have back in the 60's. As for the domestic car industry, Ugh!!!

Ask Congress why they make so much of the country off limits to oil and natural gas drilling which would lower the price of energy. Turning corn into ethanol raises food prices. Both hit poor and working class families very hard. Can we afford to have people lose their jobs because they can't afford to get to work or feed their children bad meals because they can't afford nutricious food? It is time for Congress to pay attention to the working people not wealthy environmental zealots who offer big campaign contributions.

It is  a sad state of affairs when US based industries are dying. Between lousy airline service and high priced US made automobiles the average consumer has had enough. I stopped buying Ford products (I was a 20 year loyal customer) when pricing out paced quality. Built Ford tough means nothing when recalls and poor service are the norm. I quit using American Airlines year ago for basically the same reasons. Overpriced product with lousy treatment by it's personel. When you can't even get a sandwich from an airline because the costs are too high, but you pay through the nose for a flight, that's enough for me.

i'm in the trucking business. if someone doesn't do something about the price of diesel fuel, 3.97 gal, the trucker is going to have to shut down! and the trucking industry moves the nation, can you think of anything that is not moved by truck? when it stops, hold on to your hats folks!  not going to be pretty.....

I totally agree with C. Olsen that the airlines are creating their own problems by charging for extra baggage, charging for checking bags at curbs, poor service in flights, long lines at ticket counters. Instead of trying to bring in business tey seem to want to push people away. And our government will bail them out like they always do. Sink or swim American. You are no better than any other business that is trying to survive.  

Bad product, inferior service might have something to do with the decline in car sales and passengers. I for one will never buy a Ford again (Ex. 2004 Escape owner) or travel an airline that will small change me to death. Think about it, if they charge $15 more for a flight, and you get a decent meal + snack and carefree/comfy travel, would you pay for it? Less is more doesn't apply here.

Sad to say but the American Automobile product is every bit as good as the foreign automobiles offered for sale here in the US. The sad situation is that the American consumer has no idea because the foreign manufacterers have done a much better job of communicating a perceived quality advantage. Finally we better start looking favorably at US manufactered goods or there will be NO MANUFACTERING left in this country. We have seen the steel industry go away and we are now paying the price due to weak currency exchange rates. Don't let non-US manufacterers hold us over the barrel.

It's unfortunate that some airlines will suffer a loss of revenue because of the price of gas.  However, people will continue to fly to where they need to or want to.  It's sad that the average family will have to pay more to travel when they go on vacation either flying or driving.  What should be done since government regulates us so much anyway is to regulate a fuel cost on top of the price for an airline ticket. If the cost of fuel goes up then the fuel cost goes up.  If it goes down then the fuel cost goes down.  This way the destination cost is what become competative among the airlines yet the fuel cost remains the same throughout the industry.  Oh well just an average citizen expressing his thoughts...

Our government is to blame with all of this.  Our government needed to seek alternative fuel sources decades ago so that we as Americans were not so dependent on foreign oil.  Let's get that research going on Biodiesel fuels to power our cars and airplanes.  If you don't know what that is... do your homework!

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