TORONTO -- Decoma International Inc., already on the acquisition trail, will step up its search for takeover targets as auto parts companies face stiff competition and weakening demand, company officials said Wednesday.
"There has never been a more fiercely competitive time in our industry. The fallout from the various market pressures will result in industry consolidation," Al Power, Decoma's CEO, said during an industry analysts' conference call.
"Decoma is in a strong position to be one of the consolidators and make further gains in market share versus our competitors."
Auto parts companies like Decoma are bracing for a downturn in demand as excess capacity, production cutbacks and a fierce price war among the automakers have chipped away at the profits of parts suppliers.
With the slowdown, analysts expect the sector to consolidate as parts companies with deep pockets and aggressive plans seek struggling rivals at bargain prices.
Just last month, Decoma made a $10.8 million (C$16.4 million) bid for certain assets and businesses of France's financially troubled Peguform.
Peguform, which is in receivership, operates four manufacturing plants in France and had sales of about $160 million in 2002.
Last year, Decoma's majority owner, Magna International Inc., bought Donnelly Corp., a maker of automotive mirrors, giving it a foothold in another auto segment.
National Bank Financial analyst MacMurray Whale said that Decoma's strong balance sheet and ties to Magna's even bigger bankroll puts it in a strong position to seek more takeovers.
"There's really a lot (of consolidation). It's amazing how rapidly it can happen. You get your margins squeezed a little bit, and the next thing you know the company is not doing so well, and it gets into trouble quickly," he said.
Whale said it is important that Decoma look for takeover targets that will not only give it more market share but increase its customer base.
With the Peguform bid comes two key relationships with Peugeot and Renault in Europe.
Whale also sees further opportunity for takeovers among troubled companies based in the United States.
Parts makers have forecast a slowdown in car and light truck sales on both sides of the Atlantic.
Decoma expects car and light truck production to fall 2 percent in North America to about 16 million vehicles and drop 1 percent to 16.2 million in Europe.
"While we expect some weakness in vehicle production volumes this year, we will continue to focus on operating efficiencies and prudent financial management," Randy Smallbone, Decoma's CFO, said in a statement Tuesday after the company posted stronger fourth-quarter earnings.
Decoma, a maker of exterior parts such as plastic bumpers and body panels said net income was $23.1 million, or 25 cents a share, in the quarter, up from $19.8 million, or 20 cents a share, a year earlier.
Six analysts surveyed by Thomson First Call expected earnings in a range of 24 cents to 30 cents a share with an average of 27 cents.
Sales were $528.2 million, up 13 percent from $466.4 million in the year-ago quarter.
For the full year, net profit was $93 million, or $1.03 per share, on sales of $2.06 billion.
Decoma forecasts 2003 full-year sales in a range of $2.05 billion to $2.2 billion, and earnings to be between 84 cents and $1.01 per share.