Counting the chips at Detroit's tables
Special Report From August Cole, CBS.MarketWatch.com
SAN FRANCISCO (CBS.MW) -- Ask any cabbie in Detroit, and they'll tell you all about the small fortunes that can be won or lost in the struggling downtown area's casinos.
But if you wanted to see Motown's real stakes in play, all you had to do was tune in to the quarterly conference calls from Ford Motor (F: news, chart, profile) and General Motors (GM: news, chart, profile) last week.
Like two high-rollers squaring off after a smoke-filled early morning run, the world's two biggest automakers were nose to nose before the financial community last week as they gave their take on the first half of 2003 and what was still to come.
Peering through the economic haze, GM assertively laid down its cards, stating that its discounts and financing are still going strong even as the economy hopefully comes together.
But Ford blinked, or so it seemed that day. And Wall Street saw it.
Conservative view
A lot is riding on how Ford manages the perception of its cost cutting progress and other internal reforms designed to get the company back to consistent profitability.
How the company makes those delicate moves greatly affect its ability to deal with an improving but glaringly uncertain economic climate. Executives there know that turning out better vehicles more efficiently, and quickly, is the best insurance against a downturn.
On that front, however, there is still serious concern in some corners after Wednesday's quarterly report.
"There was little evidence to support a turnaround thesis," wrote Rod Lache, Deutsche Bank auto stock analyst, in a research note. He has a "sell" rating on Ford shares.
Beyond the falling performance of the company's auto operations, there was a cautious tone to the comments about the state of the U.S. economy, and how it affected business gets done.
"I have never seen a time when it seemed more sensitive for us to plan on very conservative assumptions," said CFO Allan Gilmour.
Gilmour has been around the auto business a lot longer than most of the people writing about it and should be listened to when it comes to these matters of context. More so now as he prepares to cede the seat to the company's controller. Even if the conference call wasn't meant to tether any out-of-line expectations out there, the close attention the company is getting at its 100-year milestone shows just how important this summer is to Ford. In the June monthly sales conference call, the company has been optimistic, expecting the economy to improve and sales to solidify in the second half of the year. All that is out of Ford's control.
What is in Ford's court this summer includes make-or-break pricing for the new F-150 pickup, labor negotiations with the UAW and more job cuts. And that's just in July. See full story.
Gung-ho
A day later, GM's executives had the sort of infectious swagger that comes across even over a tin-can sounding conference call.
It was reminiscent of the contagious confidence of Bob Lutz, the GM executive in charge of keeping the company's product on track. Again, GM drove home how important it considers more discounts and incentives even as the economy improves. Talk like that has to make folks at Ford and Chrysler squirm.
GM didn't exactly draw three aces. As at Ford, the Detroit-based company's auto operations profit fell. But the optimism about the U.S. economy helped reinforce the momentum on the important, and sometimes subjective, measures that help a company ride out tough economic times. See full story.
Even if the economic models used by the companies' respective experts aren't modestly different, the lens through which they are seen is surely colored by the company's own image of itself.
In the end, the financing operations at both companies are among the most profitable endeavors they have going right now.
That is worrying to Deutsche Bank's Lache, who also rates GM "sell."
"One of our big concerns on GM is that the company's mortgage business has likely peaked, and that declines will not be completely offset by improvements in the automotive business," he wrote.
In the end, both stocks fell modestly on the week.
For investors or even those driving late-night airport runs to Detroit's Cobo Hall, that is reminder enough to not bet the house on just one hand.
August Cole is spot news editor at CBS.MarketWatch.com in San Francisco.