UBS Investment Research
US Auto Supplier Survey Q1 2010
Industry Leverage Significantly Improved
Leverage significantly improved in 2009 downturn
The results of our Q110 Supplier Survey support our view that industry operating
leverage has dramatically improved in the industry downturn. Suppliers reported
breakeven N American production of 9.3m significantly above our 11.1m estimate
and down 9% from 10.2m reported in Q109. Not surprisingly, 51% of supplier
reported that the downturn addressed the excess capacity in their segment, and
54% expect profit margin expansion over the next two years.
Ford most preferred automaker among suppliers
53% of suppliers describe their relationship with Ford as good. This was the
highest among automakers and was the first time Ford surpassed Toyota and
Honda. Moreover, the most suppliers, 53%, reported that they would prefer to
grow their Ford business, likely reflecting positively on Ford’s growth outlook.
Industry distress not over; consolidation still expected
Despite the significant improvements in N American production, suppliers still
reported liquidity issues. Suppliers still expect 9% of the industry to go out of
business by the end of the year. Moreover, 43% of suppliers reported difficulty
obtaining components from distressed sub-suppliers. Supplier failures present a
share opportunity for well capitalized suppliers. That said, 43% of suppliers expect
that most of the industry consolidation to be voluntary (vs. bankruptcy/liquidation).
Maintain Buy ratings on F & LEA and Neutral ratings on JCI & BWA
We believe well capitalized companies like LEA and JCI will likely benefit from
remaining distressed suppliers.
Global Equity Research
19 April 2010
Colin Langan, CFA
Table 1: Change in Supplier Outlook