Article Excerpt:
TWST: Let's start with an overview of what you're covering in the Auto space.Mr. Kwas: I cover seven auto suppliers: American Axle (AXL), BorgWarner (BWA), Gentex Corporation (GNTX), Lear Corporation (LEA), Johnson Controls (JCI), Magna International (MGA), and Tenneco (TEN). I also cover six auto retailers: Asbury Automotive (ABG), AutoNation (AN), Group 1 Automotive (GPI), Lithia Motors (LAD), Sonic Automotive (SAH), and United Auto Group (UAG). I do not officially cover GM and Ford, but I do follow their sales and production trends, which obviously have an impact on my suppliers.
TWST: Let's start with the suppliers. What's gone on so far this year
from a business perspective?
Mr. Kwas: In Q1, supplier earnings were a little bit choppy. The
companies with customer diversification and geographic diversification
continue to do reasonably well. North American production was up 4% year
over year in Q1, but we expect production to be volatile in the second
half of the year because of increasing inventory levels at the Detroit
Three manufacturers and because of product launches, particularly at
Chrysler and General Motors. GM has rolled out its new line of SUVs in
the first half of the year and will launch its pickup trucks in Q4.
Given the product changeovers at General Motors and Chrysler, we expect
production softness in the back half of the year, particularly if retail
sales stay soft. Through May, retail sales are estimated to be down 3%
year to date according to JD Power & Associates. The Detroit Three are
pulling back on the number of units they deliver to fleet customers,
whether they be daily rental customers or commercial fleet customers. As
a result, retail sales need to improve for those manufacturers to
maintain current production rates, in our opinion. At this juncture, the
bias on Detroit Three production is to the downside.
Tickers included in this excerpt: ABG, AN, AXL, BAS, BWA, G, GNTX, GPI, JCI, LAD, LEA, M, MGA, SAH, T, TEN, UAG, VC
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