U.S. Auto Supplier Sales Beat Industry Gains as Rules Spur New Technology

U.S. auto-part suppliers BorgWarner Inc., Gentex Corp. and Tenneco Inc. are boosting revenue faster than vehicle sales are growing as safety and fuel-efficiency rules force automakers to adopt new technologies.

BorgWarner, which makes turbochargers that enhance small engines, said sales this year will top its total from 2007, before the financial crisis caused a collapse in auto sales. Revenue at Gentex, which makes vehicle mirrors, may top its level before the crash this year, and Tenneco, which makes filters for diesel exhaust, may do the same next year.

The suppliers are selling new equipment to help automakers meet a U.S. requirement to increase the fuel efficiency of cars and light trucks 30 percent by 2016. Interest in new safety features, including rearview cameras, is boosting demand at the same time as auto sales and production are rebounding.

“With the recovery and the adoption curve it’s a double- kick some of these companies are getting,” Brian Johnson, an analyst with Barclays Capital in Chicago, said in an interview.

U.S. light-vehicle sales may rise 11 percent to 11.5 million this year, according to IHS Automotive in Northville, Michigan. Annual sales plunged to 10.4 million last year, the worst since 1982, after averaging 16.8 million from 2000 to 2007.

U.S. vehicle production will increase 38 percent to 11.9 million this year from 8.6 million in 2009, and will reach 12.9 million next year, IHS said. The group forecasts output will regain the 2007 level of 15.1 million by 2014. Global production will increase to 75.5 million next year from 66 million in 2008, according to IHS.

Sales Rebound

Gentex, based in Zeeland, Michigan, is expected to boost revenue 48 percent to $807.6 million this year, the average of 10 analysts’ estimates compiled by Bloomberg. Sales in 2007 were $653.9 million.

The company may expand revenue as much as 20 percent a year as products such as its mirrors that display images from a rear- mounted camera are increasingly adopted by Ford Motor Co., Volkswagen AG and Honda Motor Co., David Leiker, an analyst with Robert W. Baird & Co., wrote in a research note Dec. 6.

A National Highway Traffic Safety Administration plan to require rearview cameras in all new cars by 2014 would expand Gentex’s potential market to half of all light vehicles from one-third if it becomes law, Leiker wrote. The company’s shares surged 18 percent on Dec. 3, the day the proposal was made public. The shares fell 13 cents to $29.04 yesterday and have climbed 63 percent this year.

End-Market Demand

“We’re going from the bottom of the cycle to the top and the end-market demand is growing,” Leiker said in an interview.

Leiker, who is based in Milwaukee, has an “outperform” rating on Gentex, Autoliv Inc. and Johnson Controls Inc., the largest U.S. auto-part supplier.

The stricter proposed fuel-economy and safety standards would depress auto sales and increase the cost of vehicles to consumers, the Ann Arbor, Michigan-based Center for Automotive Research said in a study yesterday.

The average vehicle cost would rise by more than 22 percent if the U.S. requires automakers to double fuel economy to more than 60 mpg by 2025, the group said. Consumers replacing older vehicles with new ones at a slower rate would benefit aftermarket parts-makers and auto-repair companies, said Sean McAlinden, the group’s chief economist.

BorgWarner has forecast 2010 sales will gain 40 percent from last year and said in November that its backlog of new powertrain business for 2011 through 2013 had increased 28 percent from the prior three-year period.

Turbochargers, Emissions

About 77 percent of the expected $2.3 billion in new business from 2011 through 2013 will be from engine-related products such as turbochargers and emissions controls, the Auburn Hills, Michigan-based company said in a statement Nov. 9.

“We’re being awarded a lot of business right now, and it will show up in the next two to five years,” BorgWarner Chief Executive OfficerTim Manganello said on a conference call with analysts and investors.

BorgWarner shares rose 71 cents, or 1.1 percent, to $68.16 yesterday and have more than doubled this year.

Tenneco, which makes mufflers and diesel exhaust filters used by General Motors Co., Daimler AG and Caterpillar Inc., is expected to post revenue of $5.83 billion this year, the average estimate of eight analysts surveyed by Bloomberg. That would be a 25 percent gain from last year. Revenue next year is expected to rise to $6.86 billion, the average estimate of eight analysts, topping its $6.18 billion in 2007 sales.

Emissions Standards

The company is benefiting as makers of autos and heavy equipment work to meet stricter emission standards across the world’s largest markets such as the U.S., Europe, China, Japan, Brazil, Russia and India.

Tenneco fell 68 cents, or 1.7 percent, to $40.54 yesterday in New York Stock Exchange composite trading. The Lake Forest, Illinois-based company has more than doubled this year.

The Bloomberg Americas Auto Part/Equipment Index, a 22- company group of suppliers, has gained 57 percent this year and reached a 52-week intraday high Dec. 7.

“It’s both pleasing and a bit surprising that we’ve seen these companies come back as soon as they have,” said Jim Gillette, an analyst at IHS. “A year and half ago, we thought the end of the world was right around the corner.”

To contact the reporter on this story: Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net.

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net.

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