Role of the Auto Industry in the Stock Market
The auto industry and Wall Street have had a love-hate relationship since the big three U.S. automakers -- General Motors, Ford Motor and Chrysler -- started trading in the stock market in the early 20th century. The auto sector is one that has produced groundbreaking initial public offerings but has also been riddled with problems and caused investors financial loss. From corporate bankruptcies to government bailouts and the departure from the pubic markets altogether, the role of the auto industry in the stock market has been volatile at best.
Auto stocks have a long history on Wall Street. General Motors, for instance, first went public in the stock market in 1916, at which time the company was generating enough cash to pay shareholders quarterly dividends. It wasn't until 1956 following the death of Ford Motor founder Henry Ford that this automaker had its IPO. Ford generated more than $600 million from the new offering, which turned out to be the largest IPO of that era. For decades, auto stocks were leaders on Wall Street until foreign competition increased, which in addition to antiquated business practices and outdated vehicles, began to weigh heavily on the financial performance of U.S. auto companies.
In 2008, the economy was deep in recession and major automakers GM and Chrysler, were on the brink of failure. Between 2008 and 2009, the U.S. government stepped in to provide $85 billion in loans and other financial stimulus to prevent these companies from closing. Investors returned to the stock market as shares of auto stocks and the broader stock market advanced in hopes that the U.S. economic recession was coming to an end. It wasn't the first time that Chrysler received a government bailout. In 1979 when Chrysler was close to failing, the U.S. government provided $1.5 billion in loans in exchange for stock warrants, which the government eventually sold for a $500 million profit.
GM's 1916 IPO began with such promise for investors but it didn't end well. When automaker General Motors could not produce a profit even after receiving federal money, the company filed for bankruptcy protection in 2009. GM was no longer permitted to list shares on the New York Stock Exchange as a result shares were demoted to the over-the-counter markets, where bankrupt companies can trade. Also in 2009, auto parts maker Delphi Automotive -- a former GM division -- emerged from a lengthy four-year bankruptcy. Eventually, both GM and Delphi Automotive shares became worthless and equity investors earned nothing. Both GM and Delphi started over with new stocks in the stock market.
Consolidation and Private Sector
In 1998, U.S. automaker Chrysler combined with Germany's Daimler to create one of the largest car makers in the world. The business combination struggled and the Daimler-Chrysler stock reached its best level in years when rumors of the forthcoming breakup of the two businesses surfaced. By 2007, Chrysler exited the publicly traded markets altogether and joined the private sector upon being acquired by private equity firm Cerberus in a $7.4 billion deal. Chrysler went bankrupt in 2009 and Italian car maker Fiat became its new owners. Chrysler's sales flourished under Fiat ownership and investors hoped the company would return to the stock market. In 2013, it was unclear whether or not Chrysler would in fact have an IPO.
Each month, U.S. automakers disclose their sales performance and the results have been known to not only influence the stock market but the entire economy. In 2012, auto sales increased by 13 percent. That performance made auto stocks attractive to investors. The strong sales also benefited companies in related sectors, including the companies that make satellite radios for vehicles and companies that make car batteries, for instance, according to a 2012 "Barron's" article. In 2012, auto sales were also responsible for 30 percent of U.S. economic growth in the first half of that year.
- New York Daily News: U.S. Auto Sales Vroom 13 Percent in 2012 as The Industry Enjoys its Best Performance in Five Years
- Reuters: GM IPO Raises $20.1 Billion
- CNN Money: Auto Parts Maker's IPO Completes Six-Year Comeback
- The Wall Street Journal: The Real Cost of the Auto Bailouts
- CBS News: Cerberus Takes Control of Chrysler
- The Detroit Bureau: Chrysler Stock Offering on Indefinite Hold
- Barron's: Thank Auto Sales for 2012′s Improving Economy
- National Public Radio: Examining Chrysler's 1979 Rescue
- The Detroit Bureau: Delphi Files for IPO
- The New York Times: Government Sells Stake in Chrysler
- ABC News: DaimlerChrysler Merger A Fiasco
- The Wall Street Journal: GM Files Long Awaited IPO
- CBS Money Watch: GM Shares Priced at $33 for IPO, Near High End of Forecasts
- Michigan Live: GM makes history with IPO: A Look at the Five Most Notable Public Stock Offerings Ever
- The Financial Times: Facebook IPO Offers Parallels with Ford’s in 1956
- Reuters: US STOCKS-Wall St Climbs on Extended Auto Bailout, Tech Cos
- USA Today: DaimlerChrysler's Shares Hit Six-Year High
Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.