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US Auto-Parts Cos.' Profit Up On Rejuvenated Sales, Production Rates

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.

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