Dana and Automakers Update

This is what I’ve been waiting for with Dana (DCN). Too bad I had to take a hit with the pop on Monday.

Dana Says Restatements to Reduce Profit by Up to $45 Million; Company Cuts Dividend

TOLEDO, Ohio (AP) — Dana Corp. said Tuesday that its planned financial restatements will reduce profit by as much as $45 million going back through 2004 and the auto parts maker slashed its quarterly dividend to one penny.

Dana shares fell 89 cents, or 12.8 percent, in after-hours trading. They fell 22 cents, or 3.1 percent, to $6.97 in the regular session on the New York Stock Exchange.

Here are some notables from the press release:

Although the investigation is not yet complete, and the effect of the above restatements may require the restatement of financial statements for prior periods, the company currently expects that the net aggregate reduction in net income for all periods to be restated will be between $25 million and $45 million after tax.

Financial Agreement Waivers Secured

Since Dana’s announcement on Oct. 10 of its intention to restate its financial statements for 2004 and 2005 and its decision to write off its U.S. deferred tax assets, Dana has received additional necessary waivers through Nov. 30, 2005, under its principal bank facility and accounts receivable securitization agreement. The company is currently in discussion with its lenders regarding possible modifications to its existing facilities, as well as alternative financing arrangements.

The company is in the process of addressing possible non-compliance with covenants in two of its indentures and four leases with respect to furnishing financial statements in accordance with generally accepted accounting principles in the United States (GAAP). The company is continuing to assess the impact of these developments on its obligations under other leases and agreements.

Since I’m short the stock, I’m betting that the repercussions will be serious. The auto industry is tough enough without financial problems. Dana is not in a good position.

Intuitively it sucks to, essentially, bet against America, since the auto industry has been as American as Coke and McDonald’s. But as I stated earlier, trading is trading. It is what it is.

Some more updates: I’ve closed out the KB Homes short to finance a short position in GM on its pop yesterday. GM has more problems than Ford. I like Rob Read’s take on GM in the comments to David Foster’s discussion of GM:

GM is a underperforming pension fund that happens to manufacture cars.

I’ll get more into it at a later date time permitting, but some main catalysts for shorting GM are:

1. Earnings really stunk. Estimates were for a loss of 87 cents a share. They lost more than twice that, three times if you count the extraordinary items.
2. Assuming Delphi’s pension costs will hurt
3. Sales are plummeting (same as Ford)

An interesting side analysis would be if GM’s stock declines faster and more than KB Home’s stock. Opportunity costs are a pain, as I so eloquently alluded to earlier.

Update:OK, Dana was a bad idea overall. Time to bite the bullet, admit mistake, and cover. Tax losses are a great thing eh?