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DuPont Co.'s GM risk

DuPont was ready for the General Motors blow-up, but it still hurts, an analyst writes

DuPont Co., Wilmington, and General Motors Corp., Detroit, go way back together. DuPont President Pierre S. du Pont 2d bought a chunk of GM during World War I, reorganized it as president in the 1920s, and his heirs the company's dominant shareholders, until federal antitrust officials made them sell in 1962. Since the Depression, the stocks were listed together on the Dow-Jones Industrials, until GM was cut in last week's bankruptcy. GM even made cars in a Wilmington assembly plant, until the bankruptcy ended that, too.

And GM was a DuPont customer for paints, electronics and other products. How bad will bankruptcy hurt? "A 10% change in North American automotive production rates represents a 4 cents to 6 cents swing in DuPont's earnings," reports analyst Laurence Alexander of Jeffries & Co., New York. That's about 5 percent.

GM went bankrupt owing DuPont around $7 million, "not enough to spark concern," Alexander told clients in a report. Also,  "given the uncertainty facing the auto industry," DuPont braced for eight-week summer shutdowns this year, vs. the usual two weeks. The Wilmington plant and another doomed Pontiac factory were DuPont customers, but that, too, was previously expected.

So GM's failure wasn't a surprise. DuPont's prospects are more dependent on the price of oil -- which it estimated for this year at $60/barrel, above the recent $51-and-climbing -- and, more importantly, on an economic recovery, and U.S. customers beyond the auto business starting to put products that use DuPont parts and materials back on their shelves.