US Treasury supplier guarantees were not enough to save two GM suppliers from bankruptcy. Still, Lear Corporation and American Axle & Manufacturing, Inc., two suppliers that provide GM with interiors and drivetrain components, respectively, appear to be emerging from bankruptcy quite successfully (apologies in advance for the forthcoming numerical soup.)
Lear
Last Friday, Southfield, Michigan-based Lear announced that it operated in the black in the final quarter of 2009. The Fortune 500 company underwent a four month bankruptcy reorganization last year, but emerged with a $1.2 billion fourth quarter profit, compared to a $688.2 million loss a year earlier.
The $1.5 billion in gains were illusory, related to reorganization and “post-bankruptcy accounting adjustments.” But a 4 percent increase in revenues with sales topping out at $2.7 billion in the fourth
quarter of 2009 does fall decidedly in the win column. “The company continues our very strong customer focus and our operating fundamentals have never been better,” declared CEO Bob Rossiter.
Numbers for the entirety of 2009 were not as rosy, with Lear recording an $814.5 million profit, compared to 2008’s $689.9 million loss. According to the Detroit Free Press, total revenue fell 28 percent in 2009 to $9.7 billion. North American production numbers fell 32%, more rapidly than the 13% global decline the company suffered. Still, the promising fourth quarter numbers do suggest a positive trend. In 2010, Lear awaits new electric and hybrid opportunities: The company will supply wiring harnesses, charging cables, and other parts for the upcoming Chevrolet Volt. The company forecasts sales will increase by 10%, to $10.7 million.
American Axle & Manufacturing
The tenor of the news from Detroit-based American Axle & Manufacturing was similar. The driveline component manufacturer recorded a $48.6 million profit in the fourth quarter of 2009, compared to a $112.1 million loss during the final quarter of the previous year. But here too, some of the improvement is illusory: the total income gain represented $29 million.
The remainder of the improvement derives from tax adjustments. Across all of 2009, Axle finished in the red by $253.1 million, compared to a $1.2 billion shortfall in 2008. The supplier expects to launch new parts programs with India’s Tata Motors, Mack Trucks, the Volkswagen Group, and Nissan, according to Axle CFO Michael Simonte. The company is also hoping for growth from the upcoming introduction of revised GM heavy-duty full size pickups.
Simonte indicated that he would not be surprised if annual sales of the next generation of GM heavy duty trucks reached 900,000 units. He predicts such supply contracts will ensure profitability in 2010, with sales revenue expected to increase to around $2 billion, up 40% compared with 2009.
Helping Axle further is a 50 percent reduction in fixed operating costs over the past couple of years. Analysts estimate that cost cutting across the entire automobile supply industry will ensure profitability at any point over 10 million annual US vehicle sales. If US sales exceed that 10 million unit mark substantially, suppliers will realize a big payday.
Both Lear and Axle have unfulfilled orders extending at least a few years, providing some insulation against unpredictable market fluctuations.
[Sources: Detroit News, Wall Street Journal, Detroit Free Press]
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