Bear Market in the Auto Business?

The man who sold out the Florida Marlins after winning the 1997 World Series is at it again, only this time he isn’t selling out a sports team, but rather the public dealership group he founded, AutoNation Inc. of Ft. Lauderdale, Fla.

H. Wayne Huizenga sold 2.2 million shares of AutoNation for a reported $38.9 million, according to an article written by Robert Sherefkin, in the Dec. 29 issue of Automotive News.

But Huizenga was not the only one fleeing. There were many insider transactions in the last quarter of 2003. An insider transaction occurs when a person or persons, sell off a large amount of stock in a company where they are either employed or in which they own a considerable stake.

The largest single sell-off came when the Blackstone Group – the New York financiers who bankrolled the American Axle in 1997 – sold their remaining shares in that company for $227 million.

The largest group of sell-offs came from Eaton Corp., a firm which manufacturers performance, protection and control systems for the automotive, aerospace, truck, industrial and residential markets. Eaton had twelve officers and directors sell shares in the company. Eaton Corp. did not report any of its executives buying any of the company’s shares.

The largest sell-off for a chief executive came when Robert Rossiter, of Lear Corporation – the world’s largest producer of automotive interior systems – sold 100,000 shares for a reported $6 million.

Shares of Lear Corp. sold at nearly double the share price of a year ago and Eaton Corp.’s shares were trading at prices well above their 52-week low. Several other companies were also “trading at or near historic highs.” The stock market is surging and the economy is reportedly in full recovery, and yet, insiders are reacting by selling off shares in very large numbers.

In the last quarter of the year, which ended Dec. 15, there were 74 insider transactions – 67 sales and 7 buys, according to an article in Automotive News that cites Thompson Financial, a financial services information firm based in New York. Compare that with the same period last year when there were just 31 insider transactions, 17 of which were buys and 14 sells.

What is disturbing is that this kind of trading could indicate that insiders think the value of the stock is headed south. “The extent of insider selling suggests that we may be nearing the end game in the bull market for auto stocks,” said industry analyst Rod Lache of Deutsche Bank in New York, in an article in the Dec. 29 article. Of course, it could also mean that those same insiders simply need money.

The majority of companies in the automotive sectors – retailers, suppliers and automakers – have been on the rise since the market recovery in March. However, “the market takes 12 to 18 months to . . . bid up the share prices,” said Craig Fitzgerald, a consultant with Plante & Moran LLP of Southfield, Mich., in that same article.

The only exception to the massive sell-off among U.S. automakers was Bill Ford, Chief Executive Officer of Ford Motor Co., who bought more than 2,600 shares to increase his stake in the company that bears hi name to 9.9 million shares.

Written by Roadfly Charlie

Charlie is Roadfly’s founder and publisher, and was taught to drive by his father in a 1974 Porsche 914. That made poor Charlie a Porsche fanboy for life, and after driving a 911SC at 16, he bought and campaigned a variety of 944s at racetracks up and down the East Coast, earning awards and track records in his twenties. Charlie never really got over the car bug, and after a career in real estate development he founded the Internet media firm that became Roadfly. Charlie lives in McLean, VA with his wife and two daughters, and between the demands of family and business doesn’t have much time to play with cars anymore, excluding the machinery we review.

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