Magna look for growth in green initiatives, China as profit turns a corner

Anita Balakrishnan
·4 min read

Magna International chief executive Don Walker said sustainability, as well as diversity and inclusion, are priorities for car manufacturers that are looking to work with the auto parts maker.

“Recently, I've been focused with the team on our sustainability efforts, which I think are really important, and that we've got a good plan in our diversity inclusion program,” said Walker in a conference call with analysts on Friday.

“I think we're really well-positioned to take advantage of the future mobility trends and have a great reputation with their customers, as a global supplier powerhouse. And that's the feedback I've been getting when I talk to CEOs and heads of purchasing of our customers.”

Despite the COVID-19 downturn, which has slowed auto manufacturing this year, executives at the auto parts maker said it is well-positioned and looking toward growing markets, including China, startups and electric vehicles.

Automakers such as Ford and Fiat Chrysler announced this fall plans to make electric vehicles in Canada, while General Motors said this week it will restart pickup production in Oshawa, Ont.

When asked whether Aurora, Ont.-based Magna expected to contribute the same amount to new pickups rolling off the Oshawa assembly line in 2022, the answer from executives was “yes.”

Magna has an advantage, said president and incoming CEO Seetarama Kotagiri, because it can work with electric vehicles that have both front-wheel and all-wheel drive.

The company recently announced plans to build an electric SUV with upstart Fisker. Kotagiri said Magna can be helpful to startups because it has a deep level of expertise, and can customize platforms.

However, Magna said Friday that it was writing down a US$337-million investment in Chinese transmission company Getrag (Jiangxi) Transmission Co.

The company nonetheless has announced new investments in China, where vehicle production was up 10 per cent last quarter, despite middling or falling elsewhere. Magna agreed to acquire a majority stake in seat supplier Honglizhixin in September.

“Going back 20 years, we first grew in North America, and then in Europe. So we were relatively small player, still, in China. But we have made some acquisitions,” said Walker.

“This just strengthens our position in China.”

While Chinese auto production has rallied, sales have been tougher for Magna elsewhere. Auto manufacturing was down four per cent worldwide during the quarter, flat in North America and down five per cent in Europe, Magna estimated.

The assembly line slowdowns, attributed to the COVID-19 pandemic, dragged Magna’s sales down two per cent in the three months ended Sept. 30.

Magna, which keeps its books in U.S. dollars, earned US$405 million profit on sales of US$9.13 billion in the third quarter, returning to profitability after losing money last summer. Executives told analysts that the company cut costs, including travel and headcount.

The results worked out to earnings of $1.35 per diluted share, or $1.95 per share, adjusted — above the forecasted earnings of $1.33 per share on sales of $9.07 billion expected by analysts polled by Refinitiv.

During the same period in 2019 there was a labour strike at General Motors in the U.S., and the auto parts maker lost $233 million, or 75 cents per diluted share, on sales of $9.32 billion.

“I think when you look at last year's margins for the start of last year, there's a couple things that really stick out in my mind. One is certainly the GM strike ... So that's reversed in the quarter. But we were impacted by a couple of underperforming operations,” said Walker.

“With continued realization of some of the benefits from the cost savings from the restructuring — which should grow over time — as well as continued improvement in some of those underperformers, I don't see any reason why margins can't continue to inch up over time.”

Magna says it now expects slightly better results for the full year, raising its 2020 sales expectations to $31.5 billion to $32.5 billion. The company's board announced a dividend of 40 cents per share for the third quarter.

The executives cite strong launches of GM SUVs, and Magna’s work on the Ford Bronco and Cadillac Escalade.

“We've been struggling with some losing divisions in the past few years and some difficult launches. And right now, knock on wood, everything seems to be going pretty well,” Walker said.

This report by The Canadian Press was first published Nov. 6, 2020.

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Anita Balakrishnan, The Canadian Press