VW scandal hits Canadian firms
Auto parts suppliers, dealership shares tumble amid fears of fallout
Nearly a week after Volkswagen AG’s emissions- rigging scandal first came to light, the German automaker appears to be infecting everything it touches, including several Canadian companies.
Shares in Canada’s three biggest auto suppliers, as well as a major dealership group, tumbled Thursday before recovering somewhat amid fears of collateral damage from Volkswagen’s disgrace.
Magna International Inc., Canada’s biggest auto- parts maker, saw its shares fall as much as six per cent before closing up one per cent at $ 62.48. Magna’s shares have lost 5.12 per cent since the beginning of the week.
Similarly, Canadian auto suppliers Linamar Corp. and Martinrea International Inc. have seen fourday stock declines of 2.45 per cent and 7.2 per cent, respectively.
All three companies count Volkswagen among their customers, although Magna is the most exposed with 11 per cent of its 2014 global sales, or about US$ 4 billion, coming from the automaker.
“We are obviously monitoring the situation very closely,” Magna spokeswoman Tracy Fuerst said in an email.
Linamar, meanwhile, said it counts Volkswagen as a “strategic customer” but not a material one, as it accounted for less than five per cent of the company’s consolidated sales in the first half of the year.
“As a result, any decline in sales as a result of the VW emission allegations is not expected to have a material impact to Linamar’s net earnings,” the company said in a statement Thursday.
Martinrea is in a similar position, according to executive chairman Rob Wildeboer.
“I can’t see any material impact, frankly,” Wildeboer said in an email. “People will continue to buy cars with our parts. Our exposure to VW is minimal, under two per cent, but note that if people don’t buy cars from one ( automaker), they tend to buy cars from another.”
Shares in dealership group AutoCanada Inc. also fell Thursday, adding to a four- day decline of 5.49 per cent amid fears that sales at its six Volkswagen dealerships could take a hit from the scandal.
The fallout has been felt worldwide after the U. S. Environmental Protection Agency ( EPA) accused Volkswagen of installing so- called “defeat devices” that turned on pollution- control systems only when a car was undergoing emissions tests.
When the controls were turned off, some of the automaker’s dieselpowered cars were spewing as much as 40 times more pollution than is allowed under U. S. and Canadian law.
There were fears it could engulf other automakers, too, after German publication Auto Bild reported one of BMW’s diesel cars also significantly exceeded pollution limits. BMW shares fell more than five per cent, although the company stressed it had never rigged any emissions tests.
Bond- rating agency Moody’s Investors Service lowered its outlook for Volkswagen to negative from stable on Thursday.
“This could be a long- lasting image, which would weaken Volkswagen’s market position, brand equity and pricing perception by customers. This could ultimately affect Volkswagen’s future earnings and cash- flow generation,” the company wrote.
However, most analysts stressed any impact on Canadian companies will be minimal.
RBC analyst Steve Arthur said Volkswagen’s diesel sales likely represented less than one per cent of AutoCanada’s revenue last year, and there could actually be a potential for new revenue from repairs to the affected vehicles.
“We have no way of accurately projecting what the value of these repairs might be, but it does represent the potential for a meaningful amount of high- margin service work across the six VW dealerships,” Arthur wrote in a note.