A Recovery in GM and Ford Shares?

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So far this year, General Motors (GM) and Ford (F) shares have dropped over 10% as the Dow Jones Industrial Average has moved higher by 5%. The primary reasons for the sell-off are concerns about consumer confidence and, more recently, fear that a parts shortage from Japan will slow production.

Shares in each of the firms, however, could rise again quickly.

March car and light truck sales should surge to 1,242,000 in the U.S., according to Edmunds, the auto research company. That may not allay fears about future months, but it will add to the bottom lines of Ford and GM. Overall, March sales should be higher by 17% compared to March 2010. Edmunds expects GM sales to rise 11% and Ford by 15%. Toyota (TM) sales, however, are expected to drop 3%.

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Although investors fear that GM and Ford could suffer from parts shortages next quarter, the evidence to support that is, so far, sparse. U.S. automakers may in fact benefit from a slowdown in Japanese parts manufacturing due to the March 11 earthquake.

A shortage of parts from Japan will make inventory for car companies based there scarce. But U.S. inventories may not be dramatically affected. GM recently re-opened its truck plant in Louisiana. Ford says it will be low on cars that are painted black and red -- a component of these paint colors is sourced in Japan -- but that may not hurt overall demand much.

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