Valuing the Automakers Securities

...

~ -5

’8

....

ro

r.I.l

-10

-15

’62 ’66 ’82 ’86

-- GM

--- Ford

...... Chrysler

Source: Putnam Investments.

thing about the cycle shown in the middle panel of Figure 5 is that, although the peak in outperformance came about three years after it began in May 1975, most of the relative gain was accumulated in the first 11 months of the cycle, which is unusual. The bottom panel of Figure 5 helps illustrate why some sell-side analysts referred to Ford in this period as "the stock that wouldn’t die." From late 1981 through mid-1988, Ford’s outperformance amounted to almost 1,250 percent.

As shown in the three panels of Figure 6, Chrys-ler’s performance has also varied considerably in magnitude. The middle panel shows a very short-lived burst of outperformance for Chrysler in the 1975-78 cycle, similar to that of GM. If Ford in the 1980s was the stock that would not die, Chrysler in the 1980s was the Energizer Bunny of auto stocks. When Chrysler began the run shown in the bottom panel, the company was in the early stages of emerg-ing from bankruptcy, so the stock price was ex-tremely depressed, but the run was impressive nonetheless. Ford was good, but Chrysler, outper-forming the 5&P 500 by 2,700 percent, nearly dou-bled Ford’s performance.

Note that in a substantial number of cases, the outperformance began in December. One possible explanation is that, at the end of a recession, with terrible stock performance, investors get to Novem-ber or December and say to themselves, "We have had two terrible years. Next year must be an up year." So, people pile into the stocks at the end of the year, and sometimes the end of the year turns out to be the bottom.

The length of outperformance varied from stock to stock and cycle to cycle. A summary of the rela-tionship between outperformance and the sales cycle

Figure 3. Indexed Stock Perfonnance of the Big

Three

March 1962 = 1

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’62 ’66 ’70 ’74 ’78 ’82 ’86 ’90 ’93

-- GM

--- Ford

....... Chrysler

Source: Putnam Investments.

47

Figure 4. GM’sOutperfonnance during Three Sales Cycles

(sales in units)

During 1967-68 Sales Cycle

December 1966 = 1.00

9.5 r ---------------------------- ... , 1.50

9.0

~ 8.5

o

] 8.0

] 7.5

~

~ 7.0

<t: 6.5

6.0 11/66 1/67 3/67 5/67 7/67 0.50

9/66 8/67

During 1970-73 Sales Cycle

December 1969 = 1.00

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00

2

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6 9/69 11/69 1/70 3/70 5/70 7/70 9/70 11/70

During 1981-86 Sales Cycle

14 November 1981 = 1.00 2.30

’00

13 2.10

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00 S