CHICAGO -- Shares of most major U.S. auto parts suppliers fell on Wednesday, including a 5 percent drop in Delphi Corp, after General Motors slashed its 2005 outlook because of low North American sales.
GM earlier Wednesday warned that 2005 earnings will be as much as 80 percent below prior forecasts and it now expects a first-quarter loss compared with a prior forecast to break even or post a profit.
"This entire sector is in for some tough sledding," said Peter Ziv, president of Ziv Investment Co. of Chicago. "High oil prices and rising interest rates are a double whammy against auto manufacturers and their suppliers."
The warning comes two weeks after GM said it expected to build 1.18 million units in the first quarter in North America, down from prior forecasts for 1.25 million units, and that second-quarter output would be about 10 percent below last year.
The impact of output cuts varies depending on which models are most affected and at this point that appears to be large SUVs and trucks, big sources of profit for GM and Ford Motor Co., said Alex Vallecillo, a senior portfolio manager at Armada Funds.
"GM is losing market share and seeing absolute sales go down for some of their big platforms," Vallecillo said. "We are seeing data that supports the notion that imports Toyota and Honda primarily are taking more market share, especially in the truck segment."
Armada owns shares of Sweden's Autoliv, which produces seat belts and airbags but does not own shares in the large North American auto parts suppliers.
Companies with large GM exposure include Delphi Corp., Lear Corp., American Axle & Manufacturing Holdings Inc. and Collins & Aikman Corp., Morningstar analyst John Novak said.
Delphi, which GM spun off in 1999, said in January that it expected a slow start to 2005 in part because of production cuts, commodity costs and other factors.
American Axle warned last week that first-quarter earnings would be lower than expected. That forecast took into account GM's most recent first-quarter production plans and Wednesday's announcement had no additional impact, a spokeswoman said.
Lear slashed its first-quarter outlook to about break-even on March 1 based on the most recent known production schedules as well, a spokeswoman said.
Suppliers who have secured business with European and Japanese carmakers seem to be doing better than those who depend more on the Big 3, Novak said.
The warning adds to market uncertainty over GM output for the rest of 2005 and may make negotiations with GM over the pricing of parts and raw materials even more difficult than it already is, said Standard & Poor's analyst Martin King.
"It can make those talks more difficult and (suppliers) could walk away with less than they wanted," King said. "We knew all along that it would be hard to get much help from the (automakers) in this environment."