February 24, 2009 / 11:25 AM / 9 years ago

UPDATE 2-Magna hit by loss in auto sector turmoil

* Q4 loss $1.33/shr vs EPS $0.24

* Revenue slumps 29 percent to $4.84 billion

* Says well-positioned to weather downturn (Adds details, comments from conference call and analysts. In U.S. dollars, unless noted)

By John McCrank

TORONTO, Feb 24 (Reuters) - Magna International MGa.TO reported a quarterly loss on Tuesday, as expected, as the big auto parts maker was battered by the meltdown in the global auto industry, which it warned had yet to touch bottom.

“While 2008 was a difficult year for the industry, 2009 is expected to be worse,” especially in the first half, Don Walker, Magna’s co-chief executive, said in a call to investors.

The deteriorating U.S. economy, low consumer confidence and limited availability of financing for consumers helped knock auto sales in the fourth quarter down to their lowest annualized levels in 25 years.

Aurora, Ontario-based Magna said that its net cash position of $1.5 billion and strong cash flow generation should allow it to swallow up some of its weaker rivals during the turmoil and to step in to fill voids left by companies that fail.

Walker said he expects a painful, expensive, but necessary and relatively orderly restructuring of the industry’s supply base that could see 25 to 35 percent of suppliers go under.

Goldman Sachs said in a research note that Magna’s strong liquidity and a negative net-debt position made it “by far the best positioned among large Big Three-exposed suppliers from this standpoint.”

Detroit-based General Motors Corp (GM.N), Chrysler LLC [CBS.UL] and Ford Motor Co (F.N), represent around 80 percent of Magna’s North American sales.

GM and Chrysler, which have turned to the U.S. and Canadian governments for emergency loans to survive the downturn, are not yet in the clear, and a Bank of America and Merrill Lynch note warned that Magna’s significant exposure to the Detroit Three presented a risk to its receivables.

However, Magna’s Walker said he thought it was unlikely that governments would allow any of the big automakers to walk away from their customers in the event that one of them filed for bankruptcy protection.

“If you have a freefall and... 100 suppliers or 200 or 300 suppliers basically have a liquidity crisis and they all go into restructuring, then every car company in North America goes down and the same thing probably happens in Europe,” he said. “I just don’t think the governments would be shortsighted enough to let the industry collapse and disappear.”

In Europe, the slowdown has been less abrupt, but that is likely to change, said Walker.

“In Europe, I think we are just starting to see a lot of the impact now because it’s been later for the lower productions and the downtime, so I think we’re going to see a lot more failures in Europe.”


    Magna posted a loss of $148 million in the fourth quarter, or $1.33 a share, compared with net income of $28 million, or 24 cents a share, in the year-ago period.

    The company said that after one-time charges it lost 68 cent a share in the latest quarter.

    That was in line with analysts’ average expectations, on revenue of $4.56 billion, according to Reuters Estimates.

    Revenue came in at $4.84 billion, down 29 percent. Complete vehicle assembly sales were down 51 percent at $479 million.

    Magna said the value of its parts in cars in North America fell 4 percent. Content per vehicle in Europe slid 9 percent.

    For the year, the company said sales were down 9 percent at $23.7 billion.

    The company sees restructuring and rationalization charges in the range of $40 million to $60 million in 2009.

    Magna’s shares were up 33 Canadian cents, or 1 percent, at C$32.48 at noon on the Toronto Stock Exchange.

    $1=$1.25 Canadian Additional reporting by Ratul Ray Chaudhuri in Bangalore; editing by Rob Wilson

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