Terrorist attacks make bad quarter even worse

THE BIG PICTURE
Total shareholder return for automotive sectors vs. other averages; percentage change per period
Name Q3 through 9/10/01* Q3 2001 Past 12 months Past 36 months
Global automakers -13.9 -29.3 -29.7 -18.3
Global suppliers -12.1 -24.6 -27.5 -43
U.S. retailers -10.5 -22.3 55 -28.6
Dow Jones Industrials -8.2 -15.4 -15.6 18.2
S&P 500 Composite -10.5 -14.7 -26.6 6.3
FTSE 100 -12.4 -22.3 -29.7 0.5
* This measurement has been added to show how performance was affected by the Sept. 11 terrorist attacks.

Sept. 11 turned a tough year even worse for auto industry investors.

Shareholder value dropped for each of the 53 companies tracked on the Automotive News/Pricewaterhouse Coopers Total Shareholder Return Index during the third quarter. That never happened in the previous three years, which included some grim performances. Almost all dropped by double-digit percentages between July 1 and September 30. Suppliers had the widest gap, with declines ranging from 0.9 percent to 84.3 percent. Suppliers on average fell 24.6 percent, while automakers dropped 29.3 percent and retailers 22.3 percent.

Though the terrorist attacks explain why every company declined, the third quarter free-fall was not the sole result of the disaster. Through Sept. 10, automakers already had fallen 13.9 percent, suppliers were down 12.1 percent and retailers were off 10.5 percent.

"Part of that reduction was driven by the lack of consumer confidence in the marketplace," Mike Burwell, partner in the transaction services group at PricewaterhouseCoopers, said. "That really began before Sept. 11."

Bubble burst

Unemployment already had headed up, and Sept. 11 may only have confirmed the uncertain times for many on the bubble about purchase decisions, he said.

Even when consumers filtered back to the marketplace, auto companies suffered, with drops of 10 percent to 15 percent more than such market benchmarks. Sellers of big-ticket items such as cars always are hurt harder when consumers face tough economic times.

Zero percent financing offered in the wake of the attacks has boosted sales. But the free financing comes at a high price to automakers, and much uncertainty remains over where sales and production will go when those deals end Oct. 31.

The Autofacts market analysis group at PricewaterhouseCoopers estimates 2001 global production will decline 2 percent to 54.3 million vehicles, while North American production will drop more than 9 percent to 15.6 million.

Shopping for bargains

Bottom fishing for good parts operations is one trend that could prop values back up for some suppliers, Burwell said. With the merger and acquisition market so depressed, opportunistic companies could snap up operations in low- or no-cash transactions.

But more job cuts and restructuring also are likely. Said PricewaterhouseCoopers Director Jay Singer: "The way the economy responds is really going to dictate those kind of events."

You can reach Amy Wilson at awilson@crain.com

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