Strong quarter gives auto suppliers optimism

Hope is rising among auto parts suppliers as they tally up improved business results for the third quarter of 2020.

For some, the quarter stood in stark contrast to a spring and early summer beaten down by business interruptions and cash crises caused by the coronavirus pandemic.

At Gentex Corp., the Zeeland, Mich., maker of mirror and camera systems, the resurgence was so powerful that it caught the company by surprise, CEO Steve Downing told investors in October.

"Volumes increased so quickly that it became very difficult for our operations team to keep up," Downing said in Gentex"s third-quarter financial release. The company had to rely on "many salaried employees volunteering to help build parts to ensure we were able to meet our customers" orders."

Gentex posted its second-highest sales quarter in company history, with net sales of $474.6 million. Net income was up 5 percent to $117.1 million for the period.

Gentex typically contracts with outside injection molders to supply mirror housings.

Autonomous driving technologies supplier Aptiv, based in Dublin, reported a 15 percent uptick in third-quarter net income to $283 million. Dana Inc. of Maumee, Ohio, reported net income of $45 million in the third quarter, an upswing from a $174 million loss in the second quarter. Mexican powertrain and body structure components supplier Nemak swung to net income of $90 million in the third quarter, compared with a loss of $2 million in the same period in 2019. And Swedish airbag producer Autoliv reported an operating profit of $175 million for the quarter, compared with $154 million a year earlier.

But not all fared better. Faurecia, the French seating, interiors and electronics supplier, experienced a 7 percent decline in revenue in the quarter but said that strong growth in China bolstered its results.

The question now is what comes next, said Marcus Hudson, executive director of Calderone Advisory Group, a financial and litigation consultancy. He said the positive results do not mean that the stressed supply base is out of the woods.

"When I look at many of the suppliers who"ve caught up on production at this point, at the fact that we still have 10 million people unemployed and COVID numbers are going through the roof, I would say I"m a little bit less than cautiously optimistic," Hudson told Automotive News.

"The fact of the matter here is that the economics have to catch up."

Hudson noted that automakers are still attempting to build up inventories to make up for lost production.

U.S. car sales were down 20 percent in the third quarter, but production was down only 2.5 percent, according to the U.S. Bureau of Economic Analysis. The discrepancy came in large part from the inventory rebuild.

But Hudson believes that tailwind behind supplier volume might be coming to an end.

"We believe inventory has somewhat stabilized, and so the uptick that we get from inventory build is likely gone," he said.

The third quarter"s improvements also brought new challenges in rising costs and a struggle to find enough labor to fill rising production levels.

Gentex"s Downing predicted returning to a more normalized production level by the end of first-quarter 2021.

"We"re building our model around that right now, just trying to predict what the second half of next year looks like," he said. "The only thing you can really do is move quickly — try to get your costs in line and then position the team to respond."

Laurie Harbour, CEO of the suburban Detroit auto manufacturing consultancy Harbour Results Inc., said she has been cautioning suppliers on cost as volumes return.

"It"s good to see them rebound," Harbour told Automotive News. "But you don"t want to get yourself into a fixed cost structure that then stays with you if volumes soften."

source : https://www.plasticsnews.com/news/strong-quarter-gives-auto-suppliers-optimism

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