Magna spins out more gold

AUTO PARTS

The turmoil sweeping the auto- parts industry isn’t pulling down powerhouse Magna International Inc.

Price pressures, high costs, lower production volumes and heavy losses are driving suppliers to their knees, but Aurorabased Magna continues to stand tall as it posted more strong profits.

While rivals run for the cover of court protection and crumble under more concession demands from the auto giants, Magna’s net income shot up 20 per cent to $ 159 million ( U. S.) in the third quarter ended Sept. 30 from $ 132 million in last year’s quarter. Magna’s profits for the first nine months of the year jumped 11 per cent to $ 556 million. Magna reports results in U. S. currency. But the results didn’t quite meet market expectations. Although Magna’s stock has performed better than shares of most other companies in the auto sector, Magna fell $ 2.53 ( Canadian), or almost 3 per cent, to $ 82.05 on the Toronto Stock Exchange yesterday. Magna president Mark Hogan said the future for the world’s fourth- biggest autoparts maker remains promising despite continuing misery in the industry. Hogan told analysts that a financially strong Magna will be able to win business away from rivals because the company can be more competitive. Furthermore, auto makers will prefer companies such as Magna in the current climate rather than take delivery risks with weaker suppliers.

“While we have experienced some modest negative impact from the distress in the automotive supply base, the relative weakness of some of our direct competitors has provided, and we believe will continue to provide, business opportunities for us,” Hogan said during a conference call. But Vince Galifi, Magna’s executive vice- president and chief financial officer, rejected suggestions the company would embark on any acquisition spree to scoop up suppliers at bargain prices.

“Acquisitions are difficult to integrate.”

Galifi added Magna prefers to grow “ organically” by building new plants, expanding existing facilities or buying another firm for what its technology can contribute to Magna.

Delphi Corp., Oxford Automotive Inc., Tower Automotive Inc., Meridian Automotive Systems Inc. and Collins & Aikman have gained court protection from creditors during the past year.

In Canada, Tiercon Industries fell into receivership earlier this year and closed most operations. The J2 Group of Companies bought some assets.

At Magna, sales climbed 12 per cent to $ 5.4 billion in the quarter. That boosted sales 13 per cent for the first nine months to a record $ 17 billion. The company attributed the gain to a 24 per cent jump in average North American content per vehicle and 14 per cent in Europe. Those factors overcame higher material expenses, price reductions, inefficiencies and losses in the Decoma division and the costs of consolidating and closing some operations.

Gross margins as a percentage of total sales dipped to 13 per cent in the quarter from 13.8 per cent in the same three months of 2004.