May 12, 2009 / 9:58 PM / 9 years ago

Linamar expects to make market gains in downturn

* Sees up to 60 pct of auto parts suppliers at risk

* Working with GM to reduce its receivables exposure

* Shares up 96 percent since May 4

By John McCrank

GUELPH, Ontario, May 12 (Reuters) - Linamar Corp (LNR.TO) expects to win substantial new business over the coming months as its competitors succumb to the downturn in the automotive industry and the supply base consolidates, the auto parts maker said on Tuesday.

Chief Executive Linda Hasenfratz said the company’s strong balance sheet will help it ride out the downturn and that Linamar will pick up market share as a result.

“We can expect to see significant supplier liquidation in the next coming months, which will result, for those left standing, like Linamar, with significant takeover opportunities,” she said at the company’s annual meeting.

Hasenfratz said that 30 percent of suppliers to the North American auto industry are already in extreme financial distress and are “imminently bankrupt.” Another 30 percent will be in the same position by the end of the year if they don’t get some sort of financial assistance.

“So that’s more than half of the supply base that is potentially not in business a year from now.”

Linamar has already received over C$100 million ($86 million) in takeover work that will begin production this year.

North American vehicle production is expected to be down 35 percent in 2009 compared with 2008, when levels fell nearly 20 percent from the prior year. In Europe, auto production is forecast to drop by about 18 percent.

Detroit-based Chrysler filed for bankruptcy protection in the United States two weeks ago, and many expect General Motors Corp (GM.N) to follow suit within the next two weeks as it restructures.

Both are large customers of Linamar, but neither makes up more than 15 percent of the company’s sales.

Hasenfratz said Linamar has been working with GM, as it did with Chrysler, to reduce its receivables exposure, or money owed for parts delivered. She said Linamar is also looking to top up its receivables insurance with the federal agency Export Development Canada to cover more of the at-risk receivables.

Even at GM and Chrysler, Linamar sees opportunities to boost its market share, she said.

“We are already seeing Chrysler look to significantly reduce their supply base when they emerge from Chapter 11 bankruptcy.”

To conserve cash, Linamar has halved its dividend, reduced its workforce by nearly a third from peak levels last year, and cut payrolls by 5 to 10 percent.

As a result of the slowdown in the industry, the company reported a loss of C$12.6 million in the most recent quarter, but its loss from continuing operations was far less than analysts had expected.

Since reporting its results on May 4, the company’s stock has risen 96 percent as analysts hiked forecasts.

Share of Linamar ended down 20 Canadian cents, or 2.2 percent, at C$8.80 on the Toronto Stock Exchange.

$1=$1.16 Canadian Reporting by John McCrank; editing by Rob Wilson

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