Shares of General Motors and Ford fell yesterday, Reuters reported, after a Banc of America analyst downgraded both car makers, saying each would be forced to follow DaimlerChrysler’s US move to a seven-year/70,000-mile powertrain warranty.
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According to Reuters, analyst Ron Tadross lowered his rating on GM and Ford to “market performer” from “buy”, and lowered his 2003 earnings estimates for both companies.
Tadross said Chrysler’s offer of a seven-year or 70,000-mile warranty on its powertrains would help its market share, forcing GM and Ford to reply, Reuters said, adding that when Chrysler made a similar offer in 1987, GM and Ford copied it.
Reuters said that Tadross estimated that the net cost of the warranty to Chrysler was $US325 million a year, while a similar deal would cost GM $741 million a year and Ford $468 million a year. Based on those costs, he lowered GM’s 2003 earnings per share estimate to $6.50 from $7.75, and lowered Ford’s estimate to 45 cents a share from 95 cents, Reuters added.
However, GM CEO Rick Waginer retorted that his company will not match the Chrysler Group warranty, the Detroit News said.
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By GlobalDataThe newspaper said GM stock fell $3.53, or 6.9%, to $47.61 yesterday after the Tadross downgrade.
The warranty “is not something we’re thinking about right now,” Wagoner told the Detroit News during a business trip to Milwaukee.
Although some vehicle makers have used enhanced warranty coverage to respond to quality concerns among potential buyers, Wagoner told the newspaper that sort of move was less of an issue for GM.
“At this point, we’ll do better by keeping the kind of incentive approach that we’ve had,” Wagoner told the Detroit News.
The newspaper said Ford shares also fell sharply yesterday by $1.12, or 7.4% to $13.99.
Ford will “continue to monitor the competition and respond with programmes that are right for our customers and our shareholders,” Ford division head Steve Lyons told the Detroit News.
