Friday, December 19, 2008

Auto-Parts Profit Outlook Takes a Pounding

(Tony Van Alphen — Toronto Star)

Conference Board sees 58% drop by end of ‘09 amid weak U.S. demand

Deteriorating economic conditions will hammer profits in the auto-parts industry here by 58 per cent, or almost $1 billion, this year and in 2009, according to a gloomy Conference Board of Canada report.

In sharp contrast to a forecast last spring, the board said yesterday that profits for auto-parts companies will plunge 38 per cent this year, to $1.05 billion from $1.69 billion, and fall another 32 per cent to $700 million in 2009.

“Canada’s motor vehicle parts manufacturing industry is being forced to put on the brakes as a result of an unrelenting barrage of structural and macroeconomic developments that have materialized over the last two years,” board economist Sabrina Browarski said in the report.

The profit forecast for 2009 is the weakest since the board, an independent economic research agency, began collecting auto industry data in 1999.

Output will also fall for a fourth consecutive year in 2009, the board said. Revenues will tumble 17 per cent or almost $5 billion to $22.8 billion this year and slip another 3.4 per cent to $22.1 billion in 2009.

The board said revenues and profits will start increasing again in 2010. Profits will improve to almost $1 billion in 2010 and climb to $1.17 billion in 2011.

The latest forecast represents a big decline from the board’s outlook six months ago, when it predicted profits would slide to $1.5 billion this year but recover to $1.74 billion in 2009. Read more here.