Magna expects 'rash of failures' in parts sector

Car parts makers are bracing for a financial tsunami in the coming months as the sector will see many players fail because of the global slowdown, said the co-CEO at Magna International Inc. this week.

Don Walker, who shares the chief executive slot at Magna with Siegfried Wolf, told a Detroit automotive outlook conference that the severe cuts in finished car production at auto assemblers in Canada and the United States will translate into numerous parts makers shuttering their own plants in 2009.

"I think we're going to see a rash of failures in the supplier industry and I think it's going to come in the next month or so," Walker said at the conference which was running simultaneously with a pared-down autoshow in the same city.

Magna, which makes a variety of parts for various cars, already said its North American sales were down, off 18 per cent in July-to-September period of 2008 versus the same time one year earlier.

Three month stock chart for Magna International Inc.

"The financial condition of several of our largest customers appear to be deteriorating more quickly than anticipated," Magna said when it announced its third-quarter results in 2008.

Analysts said that problems among domestic American carmakers spells obvious trouble for Magna, estimating that a bankrupt General Motors, for example, would cut the Canadian company's sales by 24 per cent.

As well, Magna's own suppliers are facing all sorts of solvency issues as the global economic crisis crimps sales and crunches credit.

Wescast Industries Inc., a Magna supplier of exhaust manifolds, said it will close a foundry in Wingham, Ont., by the end of the first quarter and eliminate 140 jobs.

"This decision has been made in light of recent announcements by Wescast’s major North American customers to significantly reduce production volumes," the company said in a statement.

The parts sector has faced widespread commercial pain throughout all of 2008.

Delphi Corp., which has been in U.S. Chapter 11 bankruptcy protection for awhile, managed to sell an exhaust subsidiary for $17 million US in the fourth quarter of 2008.

Dura Automotive Inc. dragged itself out of similar protection in June through a restructuring that would see the parts supplier closing 16 plants by the beginning of 2009.