DETROIT -- Stricter U.S. fuel economy standards announced today may hurt auto-parts suppliers with the strongest ties to truck-dependent Detroit automakers.
Companies like American Axle & Manufacturing, Lear Corp. and top North American supplier Magna International Inc. have the most to lose from the proposal, said Rich Kwas, an analyst with Wachovia Capital Markets, in a research note. All three suppliers gain much of their business from light trucks, which are less fuel efficient than cars.
BorgWarner Inc. may benefit from its turbocharger business as gasoline direct-injection and diesel technologies will likely appear more quickly in the United States, Kwas said. Battery-maker Johnson Controls Inc. will also profit from increased hybrid introductions, he said.
The companies are preparing for the implementation of President Barack Obamas announcement of an increase in average light-vehicle fuel standards to 35.5 mpg between 2012 and 2016. The new standards raise fuel economy by 10 mpg over current models required performance. The current program requires automakers to achieve a fleet average of 35 mpg by 2020, a 40 percent increase over todays light vehicles.
American Axle relies on General Motors for about three-fourths of its sales. GM and bankrupt Chrysler LLC made up 42 percent of Lears revenue last year and 30 percent of Magnas sales last quarter.
The new standards will hurt the parts supply business overall, as automakers may produce more small vehicles to bring down their fleets fuel-economy average, said David Leiker, an analyst with Robert W. Baird & Co. Inc.
It will shift mix to smaller vehicles and require smaller engines, Leiker said today in a research note. Think less content per vehicle with average transaction prices of $15,000-20,000 versus $30,000-40,000.
Leiker also said demand for Autoliv Inc.s safety systems, Modine Corp.s cooling systems and Tenneco Inc.s diesel emission after-treatment may outpace the overall industry.
Luxury vehicles will also cost more from including additional fuel-efficient technology, Kwas said, which will hurt European luxury brands. The new standards, an Obama administration official told reporters yesterday on conditions of anonymity, will add about $600 to the price of producing a vehicle compared with the current law.
In March, when the administration tightened 2011 model-year emissions to an industrywide average of 27.3 mpg, officials said the change would cost the industry $1.46 billion to implement.
That may bode poorly for Penske Automotive Group, which has the highest exposure to luxury brands of the publicly traded auto retailers, Kwas said. About two-thirds of Penskes revenue in 2008 came from sales related to luxury brands. Still, Penske is the exclusive distributor for the fuel-efficient Smart minicar brand.
Reuters contributed to this report.