National Post (National Edition)

Magna trims its 2018 sales targets as Trump tariffs hit parts makers

- Alicja Siekierska Financial Post asiekiersk­a@nationalpo­st.com

The steel tariffs imposed by U.S. President Donald Trump are hitting auto parts manufactur­ers, with Magna Internatio­nal Inc. lowering its sales targets for 2018 and warning the levies will affect its earnings for the second half of the year.

“As far as what’s going on with all of the tariff activity, it’s certainly in flux,” Magna’s CEO Don Walker told analysts. “Internally, it’s extremely complicate­d to get arms around everything.”

Walker said the company’s estimated exposure to the tariffs imposed by the U.S. is $60 million on an annualized basis, with $30 million expected through the remainder of 2018. The uncertaint­y surroundin­g tariffs on both Canadian and Chinese steel, as well as a strengthen­ing U.S. dollar and headwinds related to its GETRAG transmissi­ons business, prompted Magna to lower its end-ofyear outlook for income, sales and other key targets.

Canada’s largest automotive parts maker now expects net income to be in the range of $2.3 billion and $2.5 billion, down from a previous estimate of between $2.4 billion and $2.6 billion. Total sales estimates were also lowered, and are now expected be in the range of $40.3 billion and $42.5 billion, as opposed to $40.9 billion and $43.1 billion.

Magna’s stock fell more than seven per cent following the earnings release.

The highly integrated North American auto industry has been grappling with uncertaint­y as a result of the hefty steel and aluminum tariffs, which were imposed by the Trump administra­tion in May, as well questions about NAFTA renegotiat­ions.

Walker said the quicker Canada, the U.S. and Mexico can reach an agreement on NAFTA, the better.

“The longer this goes on, and I think everybody is aware of this, the worse it is for NAFTA, including the U.S.,” Walker told analysts.

“There are some pretty tough issues there and I would hope that we do see something in the next few months ... I think eventually we have to get it resolved, or else it’s going to be a big lose for everybody.”

Magna is not the only Canadian auto parts maker that is grappling with trade uncertaint­y.

The chief executive officer of Linamar Corp., the second-largest automotive parts manufactur­er, told analysts on a conference call on Tuesday that while the impact of the steel and aluminum tariffs have been minimal on the company, others are beginning to feel the pain.

“Certainly companies are starting to feel the impact of the metal tariffs,” Linda Hasenfratz said. “Several automakers have cited higher costs and warned of escalating impact from such. Pain is slowly building and will ultimately take its toll.”

At the same time, Hasenfratz said that it was positive that NAFTA discussion­s have resumed. She said that on the automotive rules of origin, which have been a point of contention throughout negotiatio­ns, the parties are “close to a deal ... that is workable.”

“A 70-per-cent regional North American content (rule) that has been proposed by the Mexicans can be done I believe with minimal disruption,” she said.

Both Linamar and Magna have production facilities located in the NAFTA region, as well as China.

Magna reported $626 million in net income during the three month period ending June 30, or $1.77 diluted earnings per share.

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