GM Profit Warning Hits the Dow

General Motors (GM) shares are down $4 and account for more than half of the Dow’s 50-point loss this morning. Nobody should be surprised by this earnings warning. The U.S. auto makers are getting crushed by foreign competitors, and that phenomenon is nothing new. GM and Ford (F) rely on their financing divisions for the majority of their profits. In fact, I read somewhere a few months back that GM makes a profit of only $300 on each car sold (not including the loan GMAC extends to the buyer).

Companies like Toyota (TM) will continue to take market share in the United States. If you want to buy an automobile stock, buy that one. I know GM and Ford pay hefty dividends, but there are many other places to get that type of yield, and you won’t have to worry about capital depreciation. If you are leary of giving up on the domestic auto companies at these lowly levels, consider GM’s corporate bonds. That paper is paying more than 9% interest and comes with less risk than the common shares.

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