Tuesday Ticker

Parts Performances

The recent General Motors strike has cost two Canadian parts companies, Magna International and Martinrea, dearly.

Magna International has cut its 2019 outlook on lost volume and now expects a net income of between $1.8 billion and $1.9 billion⁠—down from the company’s previous estimate of net income between $1.9 billion and $2.1 billion.

Magna’s adjusted earnings for the quarter ending Sept. 30 came in at $1.41 per share, compared to $1.56 per share in 2018’s third quarter. 

Unadjusted, Magna had a net loss of $233 million, or 75 cents per share, after recording a $537 million non-cash impairment charge related to the company’s Getrag joint ventures. The ventures have been hit by declines in manual transmission demand and declining auto sales in China.

“We’re disappointed in the recent results and future projections in the Getrag joint ventures and the growth of the Getrag joint ventures,” said Don Walker, Magna chief executive.

Martinrea, a Vaughan, Ont.-based automotive parts manufacturer, also took a sales hit as a direct result of the strike.

Last week, the manufacturer reported financial results for the period ending Sept. 30, saying it lost approximately $20 million in sales during September and another $70 million in October. GM is Martinrea’s largest customer.

“For our fourth quarter, we will experience the impact on sales, margins and earnings of some volume decreases primarily because of the GM strike, which eventually affected the entire month of October,” said Fred Di Tosto, chief financial officer for Martinrea.

Despite the financial losses, Martinrea was able to offset the strike’s impact in the third quarter with a 14.5 percent increase in sales. 

Last year, the company reported sales of $851.1 million, while this year it reported $974.4 million.

Martinrea also reported a net income of $46.7 million, up 28.3 percent from $36.4 million at the same time last year.

“Overall, the strike affected sales and earnings in the quarter,” said Pat D’Eramo, chief executive for the company. “But positively, we experienced solid financial and operating performances.”

Both Magna and Martinrea maintain the impact of the strike will be particularly felt in the next quarter.

Sector Slide

European automobiles and parts stocks saw a significant drop on Monday, following Volkswagen’s adjustments to its operating profit and sales growth outlook and growing trade tensions.

At Monday’s close, the European auto and parts stocks sector witnessed a 2.1 percent drop⁠—its steepest fall in about four weeks. 

Market analysts are blaming a number of factors, including Volkswagen’s recent adjustment to its profit and sales growth outlook amid a slowdown in the European auto sector. 

In 2016, VW said it expected 25 percent sales growth between 2016 and 2020. In its adjusted forecast, VW now expects 20 percent sales growth between 2016 and 2020.

The automaker also trimmed its forecast for worldwide deliveries among cooling economic growth, trade tensions and Brexit. 

According to analysts, a spurt of defensive buying spawned by uncertainty surrounding the U.S. and China’s trade talks helped curb losses in the auto sector.

Market analysts are also blaming a decline of more than 3 percent in France’s Peugeot shares after Deutsche Bank downgraded the stock to a “hold” status for the sector’s stumble.

Lifted Leases

Car lease marketplace Swapalease.com has reported the latest in its credit approval ratings for October 2019, citing strengthened credit profiles and positive consumer credit behaviour for its higher-than-usual credit approval average.

For the month of October, Swapalease.com registered a 68.8 percent approval rate from its car lease credit applicants. Though October’s approval rate was down from September’s 72.9 percent approval rate, Swapalease.com is praising its improvements, as only 55.6 percent of applicants were approved in 2017.

The average credit approval rate for the last three months (August, September and October) registers at 70.1 percent, and the company predicts continued stability entering 2020, remaining optimistic that growth will continue throughout 2020’s first quarter.

“We anticipate a continued increase in lease applicants entering 2020,” said Scott Hall, executive vice president of Swapalease.com. “Shoppers have remained confident in their ability to spend, and dealers are ready to deliver unprecedented lease deals as we close out the year. As we near the end of 2019, attractive lease deals may entice shoppers to upgrade their vehicles. With more people seeking alternatives to new lease terms offered by dealers, we will continue to see increased traffic on Swapalease.com for people seeking shorter or custom terms.”’

Headquartered in Cincinnati, Ohio, Swapalease.com is able to match a person wanting out of their existing vehicle lease contract with a car shopper looking to take over a short-term vehicle lease. The marketplace has several thousand cars and trucks available for transfer to anywhere in the continental U.S.

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