Finance Blog

Chrysler exists because Lee Iacocca bet the company on the minivan. Now, thanks to the oil crisis, the minivan looks like it could be on its last legs.

One of the company's two minivan assembly plants will be shut indefinitely on Oct. 31, Chrysler said today. The problem is that families -- the target market for minivans -- have been particularly affected by rising gas and food prices, falling home values and more difficulty in borrowing money.

It's a humiliating development for Chrysler, which spent $1.4 billion on the redesign of its two industry-leading minivans, the Chrysler Town & Country and Dodge Grand Caravan. And then saw sales go, well, nowhere.

"Everything that a family needs is more expensive right now, and so the last thing they're looking at is, 'Do they need to replace their Honda Odyssey?'" said Rebecca Lindland, an auto analyst for Global Insight, the economic consulting firm.

U.S. minivan sales peaked at 1.37 million in 2000, 17 years after Chrysler introduced them. They've been falling steadily since and are expected to fall below 650,000 this year for the first time since 1986. Sales of the Dodge Caravan were off 35% through May from a year ago and 13% for the Chrysler Town & Country, according to Autodata Corp., which tracks industry sales.

The minivan has been Chrysler's top product for years, and Chrysler has 30% of the minivan market. (The minivan came after Chrysler nearly collapsed in the 1970s and required a government debt guarantee to stay in business.)

But sales are off because SUVs have become far trendier. The much bigger problem: soaring gasoline prices that have made minivans even more vulnerable.

"The future of the segment is up in the air," Tom Libby, senior director of industry analysis for the Power Information Network, a division of J.D. Power and Associates, told The Associated Press recently.

But Chrysler created some of its own problems. Among the biggest issues: It discontinued its smaller-wheel model because it couldn't put in all the features that were in the redesigned models. That decision now haunts the company because buyers have been put off by the higher prices required to pay for the new minivans.

After stopping production at its minivan plant, in suburban St. Louis, Chrysler will still make minivans at a plant in Windsor, Ont., outside Detroit. It is also cutting a shift at a truck assembly plant in Fenton, Mo. In all, about 2,400 of 3,500 workers at the Fenton facilities will be affected.

Chrysler’s announcement comes at the end of a dismal quarter for the industry. Sales reports that the automakers will release Tuesday are expected to show that June was the worst month in at least 15 years, with sales down about 17% from a year ago, according to estimates by Edmunds.com.

Chrysler, which makes a higher proportion of trucks than the other major automakers, is believed to have fared the worst, but all three Detroit automakers are projected to report drops of at least 25%.

The combined monthly U.S. market share for Chrysler, Ford Motor and General Motors  domestic brands is estimated to be 45.4% in June, down from 51.4% in June 2007 but up slightly from the historic low of 45.3% in May, Edmunds says.

There is growing speculation Chrysler might seek to break itself up or file for bankruptcy. The company denies both possibilities. Shares of GM and Ford are down 53.4% and 28% this year, respectively. 

Edmunds.com's forecast calls for five of the Big Six automakers to report lower sales than a year ago; only Honda is expected to show an increase. Some analysts predict Toyota will outsell GM in June. However, GM's launch of 72-Hour Zero Percent Financing sale may keep GM in front of Toyota.

The decrease would extend the industry's sales slump to eight straight months, the longest tumble in seven years. Gasoline prices in June topped $4 a gallon for the first time and consumer confidence hit a 16-year low, prompting more Americans to postpone purchases of new vehicles.

Those who did buy were drawn to cars and "crossover" wagons that blend car and truck features, Bloomberg News said. On June 1, the industry had the lowest supply of cars for that date in at least 17 years, according to trade publication Automotive News.

Inventories of compact cars and hybrids are "going down at a rate we've never really seen before, and automakers are caught a bit unprepared," Jesse Toprak, an Edmunds.com analyst told Bloomberg. "It might take several years to fully meet the consumers' demands."

Late selling saps a rally as the Dow finishes with its worst June since 1930. Crude oil tops $143 but falls back to $140. Energy and metals stocks give the market a boost; techs and financials are weak. Chrysler will cut back production of minivans.

This barrage of economic non sequiturs has left us immune to any real measure of financial disaster beyond the amount of cash and coin in our pockets. We no longer even notice this process. We accept it and move on. That's one reason financial disasters seem to skate along public consciousness generating only a vague sense of dumbfounded awareness; it's a stealth bear market.

The New York Times tried to spell it out over the weekend - "Battered by Oil, Dow Touches Bear Territory" - but who can be bothered to pay attention to such things when there's wine to be drunk and bill collectors at the door? What does it mean?

What we know is that through Friday the Dow Jones Industrial Average was down 20% from the October peak. But, really, it's worse than that. The average stock in the Dow is off nearly 30%,  and some, like American International Group and Citigroup, are down more than 50%. Few on Main Street have noticed this, or even care anymore, mostly because they're busy pawning jewelery to buy gas and groceries.

Meanwhile, the economic data continues. It's relentless...

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Executive Editor Kevin Depew. Excerpted from Five Things You Need to Know. Click here for the other four things.

The hard times of the '70s were also a period of reflection and recalibration. The latest downturn is an opportunity to return to the family dinner table or the garden.

The hard times of the '70s were also a period of reflection and recalibration. The latest downturn is an opportunity to return to the family dinner table or the garden.

Wal-Mart has finally decided to do something about its staid white-on-blue logo and red, blue, and grey color scheme. In a surprising move for a company that acted as though it was too big, too powerful, and too damn cheap to bother with its image problem, Wal-Mart's new face to the world will be a white "Walmart" logo and starburst on a burnt orange background and brick store exterior. This is according to planning documents filed for a new Wal-Mart Supercenter outside Memphis.

Accompanying the new look is a new, smaller store format that features "new department titles, less signage, curved lines and earth-tone colors" according to company public affairs and government relations manager Dennis Alpert. The building will also feature lighting systems that turn on when they detect a shopper in close proximity, large skylights, and other "green building elements" in an effort to conserve energy.

Word has it that an official unveiling of the logo will come later this week. A company spokesman proclaimed that the "update is simply a reflection of the refreshed image of our stores and our renewed sense of purpose of helping people save money so they can live better." That's a nice thought, but don’t let them fool you: Everything Wal-Mart does is driven by the profit motive.  

Wal-Mart's makeover couldn't come at a better time as the American consumer feels the squeeze of a slowing economy and rising inflationary pressures. May same-store sales were up 3.9%, more than double analysts' projections, as consumers continued to trade down to discount retailers and spend their tax rebate checks on necessities over luxuries. Wal-Mart's vast scale and purchasing power helps extend the purchasing power of each dollar, an important quality we discussed in a previous post.

If the company can fix its dowdy shopping experience and continue to modernize its offerings, while moving into untapped urban markets in the United States and growing internationally, there's no reason the company can't hit Morningstar analyst Joseph Beaulieu's $60 fair value target and beyond. A commitment to environmental sustainability, a wider selection of organic foods, hip-hop inspired clothing, exclusive sales rights to the new AC/DC album, wider aisles, a friendlier corporate image, happy employees, and a new grocery store format are just some of the ways Wal-Mart is challenging preconceived notions of itself. The new logo is just another facet of this transformation. 

Previous posts:

Wal-Mart’s public relations disaster

Why Wal-Mart will save America

Wal-Mart kills video download service

(Disclosure: I don't own any shares of the companies mentioned.) 

 

Investors chase high dividend stocks with stable earnings when they are concerned about where to put their money.  Which dividends appear safest?

We looked for stocks with dividend yields north of 4.5% (above 10-year T-Note) as the cut-off and those who are expected to see earnings remain ample to maintain the numbers.  We had to eliminate everything tied to financial stocks in this climate as many dividends there are trimmed.  We also had to eliminate anything tied to high volatility and anything tied to auto's.  We screened many others, but here are seven stocks with dividends that we think will either stay the same or grow in the coming year.

24/7 Wall St. created a list of defensive stocks for 2008, and this is an update: 

Altria Group, Inc is one of the old defensive stocks in a defensive sector: good old investor-friendly and cancer-causing tobacco.  The company recently split off Philip Morris International unit and is in the midst of a buyback and restructuring.  This company didn't drop the dividend when the stock was butchered in the 1990's, so now that its business is stable it's a safe bet that it will try to keep its dividend no matter what.  With a $1.16 dividend (annualized) you have a 5.4% yield as of today and the $1.67 EPS estimate for 2008 and $1.84 EPS estimate for 2009 may actually leave more room for that dividend to increase rather than just stay the same.

Apartment Investment & Management Co. is one of th larger apartment-REIT's out there, and it is diversified on property scales and by geography.  REIT's also have to pay out 90% of their taxable income to shareholders in the form of dividends.  While apartments have not at all been immune from late-pays, the credit crunch, and the soft economy, the one area that sane people can't eliminate is their roof.  Unless they want to be homeless, destitute, or back with mom and dad, the public has to live somewhere.  Unfortunately that has not translated into share appreciation as this has lost more than 1/3 of its value.  Its $2.40 dividend does seem sustainable with expected FFO (equivalent to EPS) of $3.25 in 2008 and $3.41 in 2009.  Because the price has come off this much, its current dividend yield is almost 6.8%. [readmore]

AT& T and Verizon Communications are both believed to have safe and stable dividends.  Out of the two, Verizon is in the midst of a larger acquisition.  It is not expected to tie up all the cash that would have been applicable for the dividend, but this does make AT&T as the leader now that its recombination of BellSouth, SBC Communications and the old AT&T are all Ma-Bell once again.  AT&T has a $198 Billion market cap, its dividend is currently $1.60/annualized (4.60%), and forward income estimates of $3.01 EPS for 2008 and $3.38 for 2009 make the dividend more than sustainable for AT&T.

Dow Chemical Co is perhaps one of the least exciting of industries, but because it has a monster track record and it has to keep running whether the economy is good or bad (with profits) this one made the list.  The company's $1.68 dividend (annualized) generates an approximate yield of 4.6%.  The reason this has made the cut in the 4.5% yield threshold is because the stock is so far off of its recent highs.  At $35.10 (Thursday close), its shares are down from almost $48.00.  With over $3.00 in projected EPS in both 2008 and 2009, its $1.68 annualized dividend doesn't look in jeopardy.  When you consider its recent flurry of price hike announcements and a perception that the pricing power will be able to stick, that seems even more likely today.

Duke Energy Corp. is one of the top ten electric utilities in the U.S. with a market cap north of $20 Billion.  Its main operations are in the Carolinas with smaller presence in Ohio, Indiana, and Kentucky; and it has some Latin American exposure as well.  The utility isn't immune from current issue, and while its debt-to-equity is lower than many it has lower valuation multiples than many peers (part because of restructuring).  But one things that utilities have historically sought is to be steady dividend payers, and they hate lowering dividends.  Earnings estimates of $1.28 EPS in 2008 and $1.35 EPS in 2009 should allow this giant electric utility to keep on paying out a $0.92 annualized dividend even if it does have to eat some higher costs that can't be entirely passed down to consumers.

Senior Housing Properties Trust has been one of the more reliable senior care facility operators and REIT compared to many peers of late.  This sector even fits within our "secular trend" sector as the elderly care facility sector has far more future demand than current and planned supply when you look at the managed elderly care facilities.  Its FFO (EPS equivalent) estimates of $1.71 for 2008 and $1.79 for 2009 should allow the company to maintain its $1.40 (annualized) dividend.  Because the company has made an acquisition and financed it with a dilutive secondary offering, we are not expecting the real earnings jump to come that would increase dividend-eligible income (90% for REIT's) until 2010 or 2011.  But the income is there to maintain its dividend and the company would likely rather sell stock or take on light debt rather than to cut its dividend to holders. This one isn't without any risk, but as it is in the middle of a longer-term range and as the company has been a stable operator of nursing homes where others haven't done as well we feel the company can maintain its high dividend.

Douglas A. McIntyre blogs for Top Stocks and its an editor at 24/7 Wall St.

That sound you hear is the popping of a financial bubble in housing, the economy and the market. And you can trace it all to Alan Greenspan's Federal Reserve.

When the future is uncertain, it can pay to split the difference on your investments. That way, if the price of being wrong is too high, you'll buy yourself a little peace of mind.

Sure, the economy is taking a bite. But Circuit City is still doing much worse than its competition. I'll short it as well as Blockbuster, which is considering a takeover of this electronic dog.