By Paul Vigna And John Shipman
There's a lot of confidence, and in some cases even a little
swagger, coming from U.S. suppliers to global auto makers these
days.
After two very lean years where sales plunged and bankruptcies
swept the industry, rejuvenated sales and production rates--U.S.
auto sales rose 20% in April--are forging higher profits for
auto-parts suppliers.
Compared to record-low production levels in early 2009, this
year's first quarter was "a blowout," BorgWarner Inc. (BWA) finance
chief Robin Adams crowed last week. "You know, if there was a
slaughter rule in the auto industry for year-over-year production
performance, it would have been invoked in the first quarter,"
Adams said, referring to the gains.
BorgWarner's first-quarter sales were up 57% from a year ago and
7% from the fourth quarter. The company's improved earnings
resulted from increased global demand, higher volumes and the
ever-present "cost control," Chief Executive Timothy Manganello
noted.
BorgWarner is just one of a host of auto suppliers enjoying the
profit revival. ArvinMeritor Inc. (ARM) Tuesday posted a profit of
$13 million compared with last year's $49 million loss; sales
climbed 25% to $1.21 billion. Federal-Mogul Corp. (FDML) had income
of $15 million after losing $101 million in last year's first
quarter; sales jumped 20% to $1.49 billion. Johnson Controls Inc.
(JCI) last week said sales rose 32% and income climbed to $274
million, compared with a $193 million loss a year ago.
ArvinMeritor cited strength in emerging markets and a "slight
improvement" in commercial vehicle volume in Europe. But it's
seeing general improvement across its markets. "We're beginning to
see a good upwards sales trend across all our markets," CEO Charles
McClure said Tuesday. "South America's booming, India is back,
China's at record levels, North America's steady and Europe is
beginning to turn around."
With strong production at car makers in Europe and North
America, Johnson Controls CEO Stephen Roell said the company is
"convinced that those trends will continue into the second half of
the year." BorgWarner's Manganello is also optimistic, saying the
company's improved outlook for 2010 "reflects our view that volumes
will continue to recover" this year.
One tangible gauge of increased vigor is capacity utilization.
BorgWarner's Manganello estimated the company's utilization rate at
85% during the quarter, with some product lines "maybe even over
100%." By comparison, in the hard-hit building materials business,
wallboard manufacturing capacity was still estimated to be around
50%.
Despite the strong results compared to a year ago, some
suppliers are maintaining a somewhat more careful view. Johnson
Controls finance chief Bruce McDonald said routine summer shutdowns
will lower auto production in the second half of the year. American
Axle & Manufacturing Holdings Inc. (AXL) Chief Financial
Officer Michael Simonte said it "is prepared for a gradual economic
recovery."
Simonte said the company estimates U.S. light vehicle sales this
year at 11 million to 11.5 million at a seasonally adjusted annual
rate, or SAAR. "While a bit lower than many of your U.S. SAAR
estimates," Simonte told analysts during a conference call Friday,
"we are happy to be conservative in our planning." AmericanAxle is
"prepared for a gradual economic recovery," he added.