Auto industry faces gloomy third-quarter
Auto industry faces gloomy third-quarter
DETROIT, Mich. - The auto industry's upcoming earnings season could be discouraging.
High prices for steel and oil, so-so vehicle sales despite huge discounts and the remnants of an inventory hang over make for a potentially ugly round of financial results - and outlooks for coming quarters - at automakers and parts suppliers alike.
The July-to-September quarter is typically the weakest of the year, as automakers and suppliers shut down for summer vacations, retool for the new model year and unload previous editions of cars and trucks. But this fall looks especially grim: Over the last month, profit expectations have slipped at almost every auto-related company for the rest of this year and all of next, according to Thomson Financial, which collects analysts' forecasts.
One exception - sort of - was Ford Motor Co. Last month, the Dearborn automaker raised its profit expectation for the third quarter by 10 cents a share, or about $180 million. But it excluded expenses, which the company said would eventually cost about $400 million.
General Motors Corp. should have among the best results, despite cuts to North American light-vehicle production. Cost-cutting and strong results in Asia and Latin America should help, said Michael Bruynesteyn, who studies the industry for clients of Prudential Equity Group.
At DaimlerChrysler AG, the Chrysler Group keeps doing better, while Mercedes keeps doing worse. But perhaps the biggest factor is that the company is no longer counting losses at Mitsubishi Motors Corp., which it used to control, in its quarterly results. On the other hand, it does face a hefty setback in the Mitsubishi Fuso heavy-truck business, which is still included.
Car companies book their revenues based on what they manufacture, not what dealers sell, and third-quarter production in North America by Detroit automakers fell 3 percent, Bruynesteyn said.
Production cuts by U.S. automakers have a huge impact on Michigan parts makers, which tend to make the vast majority of their sales to domestic automakers. Two of metro Detroit's six biggest parts-makers are expected to post lower profits than they did a year ago. Visteon Corp., which sells most of its parts to Ford, is expected to lose money, but less than it did in the same three months last year.
Delphi Corp., the world's largest auto supplier, identified rising steel prices last week when it warned that it would lose far more than originally feared and could endanger many smaller suppliers. Detroit-based American Axle & Manufacturing Holdings Inc. also buys a lot of steel and suffers when GM cuts production.
Another big steel consumer is Troy-based ArvinMeritor Inc., which makes axles and other parts. But about one-third of its sales go into heavy, commercial trucks - a business that is considerably healthier than the brutally competitive car and light-truck industry right now.
Among transplants - the U.S. assembly plants owned by foreign automakers - production was up 5 percent, according to Prudential's Bruynesteyn. But he predicts Toyota and Honda will see slightly lower profits in the third quarter, in part because dollar profits earned in the United States translate into 7 percent fewer yen than they did three months ago.
Other analysts, however, predict small profit increases at Toyota, according to Thomson.
Leading interior suppliers Lear Corp. and Johnson Controls Inc. do more business with transplants than most other U.S. parts makers, and both are expected to report modestly higher profits than last year.
Auto-industry stocks have already fallen about 10 percent to 15 percent on average since hitting a peak in early summer, said David Sowerby, chief market analyst at Loomis, Sayles & Co. in Bloomfield Hills. The reason, he said, is that investors simply have many better options than buying stocks in automakers and suppliers.
Investors who want to bet that companies can get more profit out of Americans' pocketbooks - what investors call "consumer-discretionary" stocks - can do better with other purveyors of pleasure, such as Starbucks coffee, he said.
"Retail, media, travel and leisure. . . autos are fighting for investor appetites in a crowded shelf space," Sowerby said.
At the same time, larger trends in the economy - higher prices for raw materials, such as steel and oil, global competition and expected higher interest rates - make investors turn away from the auto industry, which seems to be running against the wind.
"While the U.S. economy is fairly strong and vehicle sales have remained relatively robust, there's still those headwinds that create a significant uncertainty," Sowerby said. "And investors have no appetite for uncertainty."
DETROIT, Mich. - The auto industry's upcoming earnings season could be discouraging.
High prices for steel and oil, so-so vehicle sales despite huge discounts and the remnants of an inventory hang over make for a potentially ugly round of financial results - and outlooks for coming quarters - at automakers and parts suppliers alike.
The July-to-September quarter is typically the weakest of the year, as automakers and suppliers shut down for summer vacations, retool for the new model year and unload previous editions of cars and trucks. But this fall looks especially grim: Over the last month, profit expectations have slipped at almost every auto-related company for the rest of this year and all of next, according to Thomson Financial, which collects analysts' forecasts.
One exception - sort of - was Ford Motor Co. Last month, the Dearborn automaker raised its profit expectation for the third quarter by 10 cents a share, or about $180 million. But it excluded expenses, which the company said would eventually cost about $400 million.
General Motors Corp. should have among the best results, despite cuts to North American light-vehicle production. Cost-cutting and strong results in Asia and Latin America should help, said Michael Bruynesteyn, who studies the industry for clients of Prudential Equity Group.
At DaimlerChrysler AG, the Chrysler Group keeps doing better, while Mercedes keeps doing worse. But perhaps the biggest factor is that the company is no longer counting losses at Mitsubishi Motors Corp., which it used to control, in its quarterly results. On the other hand, it does face a hefty setback in the Mitsubishi Fuso heavy-truck business, which is still included.
Car companies book their revenues based on what they manufacture, not what dealers sell, and third-quarter production in North America by Detroit automakers fell 3 percent, Bruynesteyn said.
Production cuts by U.S. automakers have a huge impact on Michigan parts makers, which tend to make the vast majority of their sales to domestic automakers. Two of metro Detroit's six biggest parts-makers are expected to post lower profits than they did a year ago. Visteon Corp., which sells most of its parts to Ford, is expected to lose money, but less than it did in the same three months last year.
Delphi Corp., the world's largest auto supplier, identified rising steel prices last week when it warned that it would lose far more than originally feared and could endanger many smaller suppliers. Detroit-based American Axle & Manufacturing Holdings Inc. also buys a lot of steel and suffers when GM cuts production.
Another big steel consumer is Troy-based ArvinMeritor Inc., which makes axles and other parts. But about one-third of its sales go into heavy, commercial trucks - a business that is considerably healthier than the brutally competitive car and light-truck industry right now.
Among transplants - the U.S. assembly plants owned by foreign automakers - production was up 5 percent, according to Prudential's Bruynesteyn. But he predicts Toyota and Honda will see slightly lower profits in the third quarter, in part because dollar profits earned in the United States translate into 7 percent fewer yen than they did three months ago.
Other analysts, however, predict small profit increases at Toyota, according to Thomson.
Leading interior suppliers Lear Corp. and Johnson Controls Inc. do more business with transplants than most other U.S. parts makers, and both are expected to report modestly higher profits than last year.
Auto-industry stocks have already fallen about 10 percent to 15 percent on average since hitting a peak in early summer, said David Sowerby, chief market analyst at Loomis, Sayles & Co. in Bloomfield Hills. The reason, he said, is that investors simply have many better options than buying stocks in automakers and suppliers.
Investors who want to bet that companies can get more profit out of Americans' pocketbooks - what investors call "consumer-discretionary" stocks - can do better with other purveyors of pleasure, such as Starbucks coffee, he said.
"Retail, media, travel and leisure. . . autos are fighting for investor appetites in a crowded shelf space," Sowerby said.
At the same time, larger trends in the economy - higher prices for raw materials, such as steel and oil, global competition and expected higher interest rates - make investors turn away from the auto industry, which seems to be running against the wind.
"While the U.S. economy is fairly strong and vehicle sales have remained relatively robust, there's still those headwinds that create a significant uncertainty," Sowerby said. "And investors have no appetite for uncertainty."
posted by InvBanker at 9:06 PM
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