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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

 

I agreed with Tom Thomas whole hartedly. Why are American car manufactures keep on building huge cars that the cusummers do not want. Why don't they use all their resources to build economically friendly cars, that are good for the enviroment and esay on the consumer pockets.

You get the government you deserve.

Oh-oh. Hammster is ticked off.

Who cares if Ford Motor Company or any of the airlines go out of business they dont care about the customers they serve.

The american corporations only care about the bottom line, you cant even speak to an english speaking customer service agent any longer, i hope the american economy goes bust the sooner the better we all let these problems occur by putting up with less and paying more, maybe if america goes down in flames we can start over again.

On a recent fly with Delta Airline, I wanted to change my ticket to stay another day in Georgia. Delta wanted to charge me $125.00 to change the returning date by one day. I offered them $75.00, but they refused. I ended up coming back at the original reservation date.Delta not only passed making an extra $75.00 but also deprived others from making additional sales such as the hotel and the car rental and local restaurants. That is not the way to encourage people to spend so the economy improves. But I guess Delta is only interested in thier bottom line.

What a pitty? I do not feel sorrow when companies like that go banktrupcy.

I get a kick out of reading automotive workers bumper stickers that say; "Out of a job yet? keep buying foreign". What a bunch of hypocrites from the UAW all the way to the stock holders. Walk into a American auto plant, anywhere in this country, and see how many American built machines are on the floor producing American automobiles. Not very many! They started buying foreign machines long before Americans started buying foreign automobiles. They put alot of American machine builders out of business. Ask a UAW member how many American Built machines they've bought for there plant, and man do they start backpeddling.

The  airlines   and  big  3 auto makers  normally will be bailed out by the U S  Govt. in time, along with the railroads. the ones that  suffer for high fuel, with no help ,are the smaller trucking compaines. If the President wanted to stimulate the economy.

   put a cap on a barrell of oil [ $50.00 per barrell  max] and things will get stimulated .  this is  double what opec wanted a couple years ago.

Airlines need to raise price of tickets to catch up with the prices of hotel rooms. Dollar is cheap tourists will come. It is amazing that people have no problem paying $300 a night in NY but complain about the Airline ticket prices!!! Business traveler is the worst. No complains about the hotels but God forbid the Airlines do not have their choice of the meal. Lets get real here.

This is a big fat mess! With all the technoglogy we have today in making things easy has fallen right before us. Greed, politicians supporting their dirty little habits and we foot the bill. You know who I'm talking about! Recession, depression just about sums it up and there is nothing we can do about it.  

You know the car business is bad when Honda starts discounting sticker prices.  A year ago I tried to purchase a CRV and the best I could find anywhere was sticker price.  I just purchased one last month for $1500 off sticker and no processing fees.  The dealers sales people almost fought over me when I walked in the door.  This recession / depression caused by oil prices will likely be the end of Ford.

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