It's become apparent that geographic diversity is a necessity for U.S. auto parts suppliers. The earnings reports issued this week by ArvinMeritor (NYSE: ARM ) and Lear (NYSE: LEA ) prove it yet again.
On the one hand, ArvinMeritor posted a profit of $44 million on revenues that jumped 21% higher as sales in South America and the Asia Pacific region fueled results. Then there was Lear, which reported that earnings plunged 85% on net sales that were 4% lower as it was socked by the strike at American Axle (NYSE: AXL ) , which in turn hampered production at General Motors (NYSE: GM ) , the source of 29% of Lear's revenues.
The key phrase coming out of these reports is "customer diversity." When your biggest customer is hanging over the abyss of bankruptcy itself, you can't expect your own results to do well.
That's why BorgWarner (NYSE: BWA ) may be one of the strongest parts suppliers of the lot, and may be one that the others will try to emulate. It has a broad geographic base of customers, realizing only one-third of its revenues from the U.S., and its biggest customer, Volkswagen, comprises just 15% of sales. At nearly 13 times next year's earnings BorgWarner carriers a richer price tag than its rivals, but it's a more financially stable company with better growth prospects.
Lear seems to be taking these lessons to heart as it expands its global presence. Indeed, international sales at the automotive seating and electronics maker were up 14% in the quarter, and it has a "new global organization structure" in place. But that's not enough for it to see industry conditions improving this year; it lowered full-year expectations and admitted conditions may worsen into 2009.
Similarly, Visteon (NYSE: VC ) reported results this week. While still mired in losses, they were much less than last year as a result of drastic cost-cutting. The company was saved from bankruptcy once, and although it appears to be in slightly better shape than it was back then, it also expects the back half of the year and much of 2009 to be dismal.
It's a global marketplace. Auto suppliers, who once did well by cozying up to their biggest customers, need to cut the apron strings and seek out new partnerships outside the U.S.
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