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European debts red flag for Detroit 3

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European debts red flag for Detroit 3

The reverberations from Europe aren't the sound of cannon fire, but that doesn't make the rumblings here any less ominous.

A collective bounce-back in the Detroit auto industry partly depends on the willingness of Europeans to spend, to buy cars, to express confidence that a global economic recovery is gathering steam. But the debt crisis tanking the common European currency, raising the specter of fissures in the European union, causing political turmoil and undercutting estimated growth rates, is threatening to undermine it all.

That ain't good for Detroit (whatever the short-term gains from a strengthening dollar), starting with Ford Motor Co.

Here's an automaker basking -- to the extent that's possible -- in the glow of having done a turnaround right. Cut costs; rework the business model; re-engineer cars and trucks as part of a global portfolio overhaul; focus existing corporate assets on fewer brands; eschew government bailouts because leadership had the presence of mind (and lucky timing) to load the balance sheet with debt-for-cash before credit markets froze.

The results have been remarkable. Steadily rising U.S. market share for the Blue Oval, up 2.2 percentage points through April compared to the same period last year; credit upgrades, most recently from Moody's, and a little too much adulation in the press; critical acclaim for each new product; rising transaction prices on new vehicles, the purest market recognition that buyers see increasing value in Ford's cars and trucks.

And shares in the Dearborn automaker? Rocketing up until questions about the durability of the U.S. recovery and Ford's role in it intersected with dismaying anti-business rhetoric in Washington and gyrating currency and economic worries coming from Europe.

Ford shares have slumped 23.8 percent, to $11.01 Monday from $14.46 on April 26, the day before the automaker surprised Wall Street with $2.1 billion in net income for the first quarter. Is the sell-off, despite Ford's profits, evidence of a growing disaffection with industrial companies exposed to Europe? Yep, and it's more.

The net effect, as an astute friend observed recently, are questions focusing on whether diminished growth rates in the regions that account, in theory, for nearly two-thirds of Ford's business (the United States and Europe) potentially mean diminished financial results for the Blue Oval. Investors seem to be saying they are, whatever Ford's results.

Even worse, by that logic, is the possibility -- if not the certainty -- that profit skeptics in the investor class begin to apply the same rationale to the ability of Ford, General Motors Co., Chrysler Group LLC and others to earn their respective nuts from the U.S. market.

That'd not only depress Ford shares and complicate the options to manage its $34.3 billion debt load, the heaviest among Detroit's automakers. It'd probably undercut the government's case to off-load shares in federally controlled GM and Chrysler through initial public offerings.

Like I said, this rattling from stock markets and capitals in Europe, intertwined as it is with equity markets here at home, ain't good for the Detroit auto industry and its campaign to emerge from a long, tough slog.

I ran into a high-ranking Ford exec last week who acknowledged the positive buzz surrounding Ford -- the cars and trucks, the share gains, the improved per-vehicle pricing -- and then he shared this tidbit: In past recoveries, production and sales volumes typically bounced back with the economy.

So far? Not really happening. Despite massive stimulus to the economy, aggressive leases and zero-percent financing from automakers and dealers eager to make a deal, the seasonally adjusted selling rate remains on a track to be fewer than 12 million cars and trucks -- well below the annual rates reaped each year for nearly two decades.

In Europe, politics are more likely to drive the economics of whether -- and how many -- consumers buy enough cars to fatten the bottom lines of skinnied-down Detroit. That's not a good place to be, considering the gut-wrenching work of the past two years, but it's reality.

From The Detroit News: http://www.detnews.com/article/20100525/OPINION03/5250321/1148/auto01/European-debts-red-flag-for-Detroit-3#ixzz0owb3DCgb

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