Despite reduced production schedules for many light vehicles in North America, nearly all of the U.S.-based automotive suppliers showed increases in both sales and income for their most recent 1995 fiscal quarters.
Many cited increasing overseas business as the main factor in the continued strength of bottom lines, despite lower domestic sales volumes. "We also continue to benefit from the fact that the European and Asian automotive markets are somewhat countercyclical economically to the North American auto market," says Gentex Corp. Executive Vice President Keith La Grande.
A slow down in the breakneck pace of sales in 1994 actually is working to the advantage of some suppliers previously impacted by materials costs. "A slower-growing economy appears to be stabilizing the supply and demand relationships in our materials markets," says Bryon O. Pond, Arvin Industries Inc.'s president and chief executive officer. "This is having a favorable impact on Arvin's product costs. I expect Arvin's performance to improve, particularly when vehicle inventories are rebalanced. By the fourth quarter, margins should expand when compared with the same period in 1994."
Arvin's earnings were down in the second quarter mainly due to a one-time litigation charge reflecting an $8 million judgment for breach of contract in connection with a 1987 divestiture.
While the overall U.S. light vehicle market has been down, manufacturers who supply strong segments, such as light trucks and sport/utility vehicles, continue to experience growth. Several also benefited from the continuing strength of the heavy truck market. "Although orders for Class 8 trucks in North America declined compared with the superheated first quarter, backlogs remain very high, and we continue to believe that production levels this year will equal or exceed the record 225,000 units in 1994." says William E. Butler, Eaton Corp.'s chairman and chief executive officer.
Demand for replacement product has been down, but some suppliers predict modest improvements in replacement market growth in the last half of the year.
Some suppliers were guarded in forecasting third and fourth quarter results. "The strength of demand in the second half of the year will very much depend on the health of the major economies," says Jacques Bougie, Alcan Aluminum Ltd.'s president and chief executive officer.
Several companies had record quarters. AlliedSignal Inc., Cummins Engine Co. Inc., Detroit Diesel Corp.. Littelfuse Inc., Trinova Corp. and TRW Inc. reported the highest net incomes of any quarter in each company's history. A.O. Smith Corp. reported record revenues and net earnings compared with the comparable year-ago period for the 10th consecutive quarter, while Johnson Controls Inc.'s results marked the 18th consecutive quarter of higher year-over-year earnings. Barnes Group Inc. and Lear Seating Corp. both reported record second quarters.
