Magna leery of border tax
CEO of Canadian auto parts giant says measure would hurt whole industry
North America’s largest auto parts maker said a border adjustment tax being studied by United States President Donald Trump would probably hurt the automobile industry, while also increasing the odds that future factories will be located in the U.S.
Canada’s Magna International said the growth of “protectionist sentiments” could hurt its operations and profitability, according to a company statement Friday. The manufacturer is closely watching a potential tax overhaul in the States, chief executive Don Walker said on a conference call with analysts and investors.
“The industry as a whole is trying to get all the facts to the right people so at least they understand what the impact might be,” Walker said. “The latest I understand is that the difference between Canada and the U.S. as far as trade is concerned really isn’t an issue. Having said that, any border adjustment tax I think would be negative for the whole industry.”
The maker of bodies and chassis, car electronics and vision systems relies on the U.S. for about one quarter of sales, and counts on Mexico for another 12 per cent. In a meeting with Trump on Thursday, U.S. manufacturers pressed their case that a tax on imports would lead to higher domestic employment. While Trump discussed the potential benefits of such a measure after the discussions, he stopped short of endorsing the proposal.
Based on recent developments, “there’s probably a larger likelihood” that car companies contemplating new investments would put new plants in the U.S. if they had to make a decision now, Walker said. Still, he said, “people will wait to see what the end result is here and make their decision.”
Magna’s earnings from continuing operations were $1.24 (all figures US) a share in the fourth quarter, trailing the $1.35 average of analysts’ estimates compiled by Bloomberg. Sales were $9.25 billion, topping the average estimate of $9.21 billion. The Aurora, Ont.based company reaffirmed its 2017 sales forecast.
The U.S. is Magna’s biggest market, accounting for more than $9 billion i n production sales a year, Walker said. About 90 per cent of that ends up in assembly plants within the country, he said.
Canada generates about $6 billion of annual revenue for Magna, with Mexico generating another $4.5 billion, Walker also said. Most of Magna’s Mexican revenue comes from parts that are shipped to carmakers within the Latin American country, he said.
The big issue for Magna will be “where our future investments are going to be located,” Walker said.
Magna CEO Don Walker: “Trying to get all the facts to the right people …”