First-half earnings for suppliers were strong, thanks to past mergers and strong demand for trucks.
Net profits for many North American parts makers are up between 50 and 100 percent for the first six months. Financial reports from 17 major parts makers over the past two weeks claim record sales and profits for several, including Lear Corp., Dana Corp., Tenneco Automotive and Gentex Corp.
Officials for the various companies attribute the increases to recent corporate acquisitions, and to business contracts in the light and heavy-duty truck segments.
The mostly positive financial results mimic this month's tabulations from two of the group's biggest customers, Ford Motor Co. and General Motors. Both automakers posted record second-quarter profits.
2 AREAS OF CONCERN
Such rosy industry reports may help stare down two recurrent worries of recent months. Economists have been concerned about signs of a softening in auto sales - especially in the all-important sport-utility market. Some of that concern was triggered by soft sales for the two market leaders, the Ford Explorer and Jeep Grand Cherokee.
Also, there has been concern over how badly strikes at GM and Chrysler Corp. would affect earnings statements around midyear. But last week's reports may have partially eased those worries.
'Despite the strikes, the industry didn't do too badly,' noted Steve Girsky, analyst for Wall Street's Morgan Stanley. 'The strikes definitely had some result. The numbers might have been even better.'
Dana reported that the strikes had chopped 13 cents a share - or $13.2 million - from its second-quarter earnings. Lear lost 11 cents, or about $7.5 million, as a result of the strikes. Yet the quarter still yielded record profits for both companies.
North American production has risen this year. In the first six months of the year, car and truck production across the United States, Canada and Mexico totaled 8,124,730 units. The volume is up 134,172 vehicles over the first six months of 1996.
But the gain is due entirely to light-truck production. Car output fell, while light trucks rose by nearly 190,000 units.
'Companies that are supplying a lot of truck content are doing well right now,' observed David Garrity, analyst for Smith Barney.
Profits at several of the supply firms rose sharply as the result of corporate acquisitions. At component maker Magna International Inc., for example, profits for the first six months were $356 million, more than double the $151 million of the first six months of 1996.
Magna, of Markham, Ontario, has acquired firms in the United States and Europe in the past year, including U.S. seat maker Douglas & Lomason Co.
Six-month profits at Magna's seat-making rival Johnson Controls Inc. also shot up more than 35 percent this year as a result of recent acquisitions..
Tower Automotive Inc., a maker of stamped metal components, saw profits rise more than 130 percent to $19.5 million for the first six months. Dugald Campbell, president and CEO of the Grand Rapids, Mich., supplier, said last year's purchases of Automotive Products Co. and SIMES S.p.A. of Italy contributed 'significantly' to the results, despite the customer work stoppages.
The strikes had an impact. Walbro Corp., a Cass City, Mich., producer of fuel systems and engine components, took a $1 million earnings hit from the 29-day strike at Chrysler's Mound Road engine plant in April and May. That interruption cost Walbro $3.6 million in sales.
Tenneco Automotive reported a $3 million impact to second-quarter operating margin from the strikes. United Technologies Automotive said strikes contributed to a 9 percent decline in second-quarter sales.
Simpson Industries Inc. of Plymouth, Mich., also blamed the strikes for derailing momentum. The strikes' toll on second-quarter sales pushed profits down by $100,000 for the six months, to $9.8 million, the company said.
Morgan Stanley's Girsky said industry conditions are good for supplier firms.
'Suppliers are still benefiting from industry consolidation,' he said. 'Even if the rest of this year is flat in terms of vehicle sales, the suppliers will show strong earnings. There are a lot of favorable conditions, including new technology, system integration and globalization, that are helping supplier earnings.
'In this environment, even in a year of flat vehicle production, suppliers could be in pretty good shape.'