This just in from one of our key insiders...
Several U.S. Automakers and Suppliers spoke at the Paris Auto Show conference yesterday. Key Points were as follows:
GM- Presentation had a positive tone. Management sounded confident that their turnaround is on track in all major regions. Western Europe is benefiting from structural cost reduction (11,600 headcount reduction achieved, out of a 12,000 planned), and they are experiencing some improvement in variable margins driven by new products and reduced sales to fleets. Asia has regained some momentum. North America has also shown some improvement, but we continue to question the sustainability of this improvement as SUV and pickup truck inventories reach peak levels in 1H07. GM did not comment on alliance discussions with Renault/Nissan. Management of the two companies are meeting this week, and GM will present their analysis to the company's board next week. It remains our belief that the GM/Renault/Nissan talks will conclude soon (before the Oct.
15 deadline), and that an alliance is unlikely. Ultimately, we believe that Renault/Nissan will participate in consolidation of the industry with another partner.
LEA North American Interiors deal likely within the next 30 days.
Lear still believes they can improve the profitability of their Seating (65% of sales) and Electronics (17% of sales) businesses to 2004 levels by 2008. We are somewhat more cautious regarding the timing. Nonetheless, 6% margins in Seating and 7% in Electronics would imply approximately $3.70 of earnings power. Additionally, management believes they may reach a deal to sell their North American Interiors Systems Division (to Wilbur Ross) within the next 30 days. We believe that such a development would be positive for the stock The ISD business burned through $300 MM cash over the past 4 quarters.
VC- Company issues profit warning, as expected. Visteon acknowledged that they are unlikely to hit their 2006 revenue, EBIT-R, and free cash flow targets. Revised guidance calls for 2H06 revenue declining by 10% vs. 1H06. Implied revenue for the full year is $10.85bn. We are reducing our EBIT-R estimate to $140MM from $156MM (guidance was $170- $200MM). We are reducing our EPS estimate to -$1.09 from -$0.89. Given reports of a potential company sale, we believe Visteon's shares are divorced from fundamentals for the near term. Visteon refused to answer questions about this issue.
Separately, Valeo acknowledged interest in making a large U.S. acquisition. See our separate note on Visteon published concurrently with this note.
BWA- No new information following last week's guidance revision BWA did suggested that their organic growth should accelerate in 3- years (it has been 9-12% historically, 70% of which was organic) as a result of increased activity from automakers incorporating/adopting BWA's fuel saving technologies.