Canadian suppliers to General Motors are likely to report lower-than-expected profits as the strike against the automaker by the United Auto Workers union enters its fourth week.
Scotiabank analyst Mark Neville slashed his third-quarter profit estimates for Magna International Inc. and Linamar Corp. by about 5.5 per cent in an Oct. 4 report.
“While the estimated sales impact is significantly less, we would expect to see high decremental margins on the lost sales as the companies, in our opinion, would be unable to fully adjust the cost base,” Neville said in the report.
GM is Magna’s largest customer, making up about 15 per cent of its sales and it’s a “top customer” for Martinrea, Neville said.
“While the strike is limited to U.S. workers/facilities, the impact has started to ripple through the North American supply chain,” he said.
He had cut Linamar’s forecast by 20 per cent in an Oct. 2 report after the company issued a profit warning in part because of the strike.
“The resultant decline in GM orders are currently estimated to impact Linamar earnings at a rate of up to C$1M [per] day of strike,” the supplier told investors in a post on its website.
More than 46,000 hourly workers at GM plants in the United States have been on strike since Sept. 16, and Sunday, Terry Dittes, vice president of the UAW-GM department, said talks had taken “a turn for the worse.”
Shares of Canada’s auto parts makers have slumped since the start of the U.S. strike last month: Linamar has dropped 13 per cent, Martinrea lost 12 per cent and Magna fell per cent. General Motors slipped as much as 1.8 per cent Monday, extending its decline since the strike started to 11 per cent.
The strike has cut GM production by more than 8,000 vehicles a day, according to calculations by analysts at Credit Suisse and IHS Markit. The cost to the automaker has exceeded US$1 billion, with GM losing about US$82 million of potential profit in North America every day of the strike, JPMorgan analyst Ryan Brinkman wrote last week.
Scotiabank’s Neville cut Magna’s quarterly earnings per share estimate to US$1.40, with the average consensus at US$1.42, according to data compiled by Bloomberg. Martinrea’s forecast was reduced to C$0.50, with the street average at C$0.54.
