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On the skids
Auto stocks lost a lot of value in 2000

By Urvaksh Karkaria
The Journal Gazette

Many auto industry stocks with Fort Wayne ties entered 2000 roaring on all cylinders, but they finished by sputtering like battered wrecks.

The stock of auto parts supplier Dana Corp. crashed nearly 50 percent from the last trading day of 1999 to the final trading day in 2000.

Truck and engine maker Navistar limped into this New Year with its stock value down about 44 percent.

Investors trimmed DaimlerChrysler's stock value about 45 percent last year, while General Motors Corp. recorded a 29.9 percent drop.

Interest rate increases, a slowing economy and tumbling earnings had stock brokers screaming "sell" for much of the past year.

The tremors of the bulls stampeding away shook the trading floors of all major U.S. stock markets.

While auto industry stocks took a walloping last year, other businesses were also jolted.

The Journal Gazette reviewed stock performance for 27 companies. Twelve of them saw increases and 15 dropped between Dec. 31, 1999, and Dec. 29, 2000.

Andrew Haddock, vice president and senior portfolio manager at National City in Fort Wayne, said last year's stock market performance was a result of three economic storms colliding about the same time: sustained high energy prices, a slowdown in technology spending and increases in short-term interest rates.

Haddock expects a slow turnaround in the stock markets this year.

Confronted with new evidence of a rapidly weakening economy, the Federal Reserve last week lowered a key interest rate by half a percentage point, the biggest reduction in more than eight years.

Haddock expects that and further cuts to eventually help boost the market.

"It's going to be extremely volatile for a while," he said, "until we see company earnings come in close to revised investor expectations."

With last year's markets, the tech-heavy Nasdaq, an investor's Shangrila during the late 1990s, led the collapse by plunging 39.3 percent in 2000, its worst-ever performance since the index started in 1971.

The S&P 500 dropped 10.1 percent last year. Even the otherwise staid blue-chip stock index, the Dow Jones staggered 6.2 percent, the worst since 1981.

"More and more businesses and investors have been betting their hopes on Internet stocks and technology companies and the bubble has finally burst," said Scott Fergusson, partner at Fergusson Miller Asset Management Corporation in Fort Wayne. "Initially people sold off tech stock and then continued until it affected all stocks."

Chapter 11 filings

The stocks of two companies, which have a major Fort Wayne presence and filed for Chapter 11 bankruptcy in 2000, plummeted so much they were booted off major stock indexes.

Cash-strapped air cargo carrier Kitty Hawk Inc. filed for Chapter 11 in May.

The Dallas-based company operates a $24 million hub at the Fort Wayne International Airport and employs about 350 in the city.

Kitty Hawk maintains its Fort Wayne operations even as it languishes in bankruptcy court due to financing and asset sales delays.

Global gasoline pump manufacturer Tokheim Corp. was also forced into a "pre-packaged" Chapter 11 bankruptcy because of a nearly $504 million debt.

The Fort Wayne-based company, which filed the bankruptcy in late August, cited an industry downturn and several major oil company mergers as reasons for low demand.

Some analysts also cite its $330 million acquisition of Schlumberger Ltd.'s Retail Petroleum Systems, a fuel dispenser systems and service business in 1998. They say it loaded the company with debt.

The Chapter 11 filing did not significantly affect Tokheim's Fort Wayne operation, which employs about 950.

Utilities were the clear winners in 2000's stock market. The sector rose about 57 percent over the past year.

Investors were exiting the technology sector and putting their money into more defensive and stable companies like utilities, said Dan Poole analyst with National City in Cleveland.

When the markets are strong, investors tend to pull out of utilities often considered "boring stocks," analysts said. This depressed their prices and made it attractive to the millions of investors fleeing Nasdaq in 2000.

Two local utilities, American Electric Power Co. and NiSource Inc., mirrored their sector performance, ending the year higher than they began.

"It was a case of a rising tide lifting all boats," Poole said.

The stock price of Columbus, Ohio-based AEP gained nearly 31 percent over the last year.

In June, AEP acquired Central and South West Corp. in a $4.37 billion deal. The acquisition gave AEP 5 percent of the U.S. market with 4.8 million customers in 11 states, stretching from Michigan to Texas and including Indiana.

AEP also restarted both units at its nuclear power plant in Michigan, Poole said, allowing the company to generate more of its own power instead of buying it on the open market.

"They are well positioned for this year," Poole said.

NiSource had an even better 2000 with its stock value gaining nearly 42 percent.

Poole attributed it to NiSource's acquisition in October of Virginia-based Columbia Energy. The acquisition gave NiSource access to several assets like gas pipelines at a time when gas prices were high.

"It's a well managed company," Poole said.

The banking sector did fairly well in 2000, said Rich Miller vice president at A.G. Edwards & Sons, Inc. in Fort Wayne.

People moved out of tech stocks to value stocks including bank stocks, Miller said. Higher interest rates also helped increase the profits of banks. Fee revenues also increased due to mergers and less competition.

Bank One, Wells Fargo, National City, Old Kent and Tower Bank all closed the year higher than they opened.

Miller said Tower Bank, which opened as a new bank in January 1999, is ahead of its revenue growth projections.

"Tower Bank is a start-up," Miller said. "It doesn't have a proven track record at this time. But it is doing the right things."

Over-valued stocks

Last year's market downturn, some say was overdue.

The Nasdaq fall was caused by a much-needed correction of over-valued technology company stocks, industry watchers say.

In the late 1990s the Nasdaq peaked as the Internet was considered the next hot industry, said Raghavendra Rau, assistant professor of management at the Krannert School of Management at Purdue University, West Lafayette.

"There was a mania for tech stocks among investors which pushed their price up," Rau said.

Since the Internet was fairly new, there were no past performances analysts could research when evaluating the future of these companies, he said.

Rau cites instances of companies adding a "dot-com" to their names and seeing their stock price skyrocket.

Technology companies received tons of money by euphoric investors many of which never had viable business plans and could not make profits, analysts said.

The telecommunications industry as a whole fell nearly 40 percent in 2000 partly due to a drop in long distance rates prompted by increased competition, National City's Haddock said.

Wire and cable manufacturer Superior TeleCom Inc. lost about 87 percent of its stock value last year. The company reported a third-quarter loss of $1.6 million in November.

The company said operating results were affected by several factors, including lower production and shipments in the building wire business.

Superior TeleCom, purchased Fort Wayne-based Essex International in late 1998.

In June 2000, Superior bought the magnet wire assets of Illinois-based Horning Wire Corp. for an undisclosed amount.

Superior TeleCom probably paid too much for the acquisitions at the wrong time in the economic cycle, A.G. Edwards' Miller said.

The steel industry also spiralled downward, Miller said, buoyed down by overproduction and price cutting to ensure market share in a competitive industry.

Fort Wayne-based Steel Dynamics Inc. was down nearly 31 percent in 2000 and Nucor Corp. was down nearly 28 percent.

Auto layoffs

An overall slowdown in the auto industry has put the Big Three and many of their suppliers into a skid.

Toledo, Ohio-based Dana Corp. has idled nearly 1,000 of its Fort Wayne employees since January last year due to market conditions.

Just last week, Dana announced 338 additional layoffs bringing the local workforce to its lowest employment level in 20 years.

Dana, which makes vehicle axle components for the light truck and SUV market, has blamed the majority of the layoffs on slow customer demand.

Production at the Fort Wayne plant, 2100 W. State Blvd., has been cut 50 percent because of the declining demand from the auto industry. The plant's two major customers are DaimlerChrysler and Ford Motor Co.

Dana has been affected by consolidation issues following its 1998 acquisition of Branford, Conn.-based Echlin, a distributor and manufacturer of brakes and engine parts for the aftermarkets.

"The acquisition did not help the bottom line as people had expected," said Fergusson Miller Asset Management Corporation's Fergusson. "They made poor management decisions regarding their integration."

Chicago-based truck and engine maker Navistar International saw its fourth-quarter profits drop by 36 percent.

Navistar reported a net loss of $105 million for the quarter ended Oct. 31. The company cited "extremely weak new and used truck pricing and lower new truck demand."

In August, the company cut its workforce by 1,100 nationwide, including 178 white-collar and contract jobs at its Fort Wayne quality control and product development operations. Navistar employs about 1,400 locally and 18,500 worldwide.

"There is a general malaise in the heavy truck market due to overproduction on the part of producers," said Chris Braig, an analyst with National City in Cleveland. "The order rates are coming down due to a slowing economic activity."

Braig said he doesn't expect to see a lot of change in Navistar's business at least until the middle of 2001.

"It will take more action by the Fed and time before the demand for trucks pick up," he said.



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