Shares in General Motors and Ford dropped following a cut in their Morgan Stanley ratings because the investment bank expects car and truck prices – and demand – to fall next year, Bloomberg News said.

The news organisation said GM fell $2.59 or 4.6% yesterday (20 June) to $US53.75, the company’s biggest one-day drop since 29 October, while Ford dropped 4.6% (75 cents) to $15.73, its largest fall since 1 April.

DaimlerChrysler’s US shares fell $1.17 to $43.98, Bloomberg said, adding that GM hauled the Dow Jones Industrial Average down due to investor concern that US consumer spending is starting to slow.

According to Bloomberg News, Morgan Stanley analyst Stephen Girsky said in a report that US demand for cars and light trucks probably would reduce in coming months with sales growth unlikely next year.

Automotive component manufacturers’ shares also fell after Morgan Stanley cut its rating for auto and parts producers to “in-line” from “attractive”, Bloomberg said.

“While earnings should also continue to be strong this year, we think next year may pose some risk,” Bloomberg cited Girsky as saying in the report. “This is due to potentially weaker demand, continued pricing pressure and the absence of inventory build.”

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Inventories at dealerships are rising, with car makers consequently likely to reduce production after supply shortages earlier this year led to output increases, Girsky wrote, according to Bloomberg.

Bloomberg News added that demand for new cars and light trucks this year has surprised vehicle makers and analysts who predicted in January that sales would slide.

Texas-based independent industry commentator and just-auto contributor Bill Cawthon said: “Morgan Stanley lowered its investment rating on GM and Ford, saying 2003 would be a bad year for the industry, with sales flattening or even declining. It also lowered its guidance on the stocks because they have outperformed the Standard & Poor’s 500 by 20% this year.

“Funny thing is, although overall sales are down this year, if the current pace continues, it will still be one of the best years on record. JD Power looks for strong June numbers indicating an annualised sales pace of about 17 million.

“First, the analysts criticise the stocks for not performing they way they want, then they complain because they out-perform the index.”