Sector Snap: Auto parts supplier shares tumble

Auto parts supplier shares tumbled Monday, along with the broader market, as investors fretted about futures of the U.S. and European car markets.

Baird's David Leiker cut earnings estimates for several auto parts suppliers, citing expectations that many companies will cut production for the second half of 2009 and that other analysts will eventually be forced to cut their earnings predictions as well.

"While consensus earnings estimates for 2009 have fallen meaningfully year-to-date, the majority of the revisions have come to first-half estimates; second-half consensus estimates are flat year-to-date," Leiker wrote in a note to investors.

Leiker also cut his rating for Autoliv Inc. to "Underperform" from "Neutral." He encouraged investors to focus on Gentex Corp. and Johnson Controls Inc.

In midday trading, Autoliv shares fell $1.70, or 7 percent, to $22.70, while Gentex dropped 71 cents, or 5.9 percent, to $11.29 and Johnson Controls fell 98 cents, or 5.9 percent, to $15.70.

Deutsche Bank's Rod Lache also cut his earnings predictions for several suppliers, saying that while stimulus plans in some countries could boost European vehicle sales by as much as one million units this year, the programs will mainly pull forward sales that would have been made in 2010.

Lache said he expects European vehicle sales to be down 10 percent this year compared with 14 percent the year before.

And European sales are expected to be down 6 percent in 2010, which Lache said could cause problems for suppliers with large exposures to the market, such as Autoliv, BorgWarner Inc., and TRW Automotive Holdings Corp.

BorgWarner shares lost $1.01, or 3.9 percent, to $24.87, while TRW shares edged down 3 cents to $6.40.

"The deterioration in Europe so far has been shallower than that experienced in the U.S. (despite a similar GDP and unemployment environment) in part due to European scrappage schemes," Lache said.

"Based on the pull forward of demand, combined with our belief that GDP growth in Europe will remain tepid through 2010, we believe that a further reduction in European auto demand is likely, and that a positive recovery will likely be delayed until 2011."