Auto industry stocks in flux
Carmakers and parts makers bounce after White House says it might help the Big Three and GM cuts production.
NEW YORK (CNNMoney.com) -- Automobile industry stocks were mixed Friday as a White House suggestion that funds from the $700 billion Treasury bailout might be used to help the Big Three was countered by General Motors' announcing a production cut.
The stocks initially fell after the failure of a $14 billion bailout to proceed in the Senate late Thursday, but recovered by midday, as investors saw hope in the Bush administration considering tapping Treasury's Troubled Asset Recovery Program (TARP) funds for Detroit.
"Anytime you're relying on Washington for news flow, you're going to get volatility," said Michael Ward, analyst for Soleil Securities.
General Motors (GM, Fortune 500) shares ended about 4% lower. The stock had retreated earlier in the day by as much as 9%, after the company said it was temporarily idling 30% of its plants in North America and removing 250,000 vehicles from production.
The Senate failed to move the bailout proposal forward Thursday night, which sent auto stocks sharply lower right out of the gate.
The Senate voted 52-35 to bring a proposed auto industry loan forward to a vote, short of the 60 votes needed to advance the legislation. This resulted from a failure among Democrats and Republicans, as well as the United Auto Workers union, to reach a compromise.
The collapse of the bailout increased the chances of General Motors and Chrysler filing for bankruptcy, which could cause a ripple effect on Ford and the entire auto supply industry.
But shares pulled off their lows shortly after the Bush administration said it might tap into the billions earmarked to bailout Wall Street to help prop up the automakers.
"Now that Congress has passed on doing anything for the automakers, the assumption is that the government will do something with the TARP money," said Jeff Embersits, portfolio manager for Shareholder Value Fund. "People are betting that the government will do something to throw them a temporary lifeline."
The Japanese automakers, which had already suffered losses on the Nikkei, also took a hit on Wall Street. Toyota Motor (TM) fell about 2%, Honda Motor (HMC) dropped 4.5% and Nissan Motor (NSANY) declined 4%.
Honda announced Friday that it will be cutting North American production for the fiscal year ending in March.
American Honda spokesman Ed Miller said his company plans to produce 1,293,000 cars and trucks during the fiscal year ending in March, which is 175,000 fewer than originally planned.
Miller added that the change in plans was unrelated to the Senate's failure to pass the bailout. "It's entirely because of a slowdown in showroom traffic," he said.
After early declines, auto supply stocks were mixed.
Dana Holding (DAN, Fortune 500), a maker of axles, drive shafts and other parts in Toledo, Ohio, surged nearly 7%. Magna International (MGA), a designer and developer of auto systems, assemblies and modules, was flat.
Johnson Controls (JCI, Fortune 500), a Milwaukee-based manufacturer of auto interiors, slipped 2.5%.Eaton Corp. (ETN, Fortune 500), a Cleveland-based manufacturer of electrical systems and other type of power systems for multiple industries slid 1%.