FocusUS auto suppliers boosted by July sales, clunkers optimism

10 August 2009 21:07  [Source: ICIS news]

By Ben DuBose

HOUSTON (ICIS news)--The stocks of leading US auto parts suppliers mostly continued to soar on Monday amid optimism over July auto sales and the recently-extended federal “cash for clunkers” rebate programme.

On 3 August, statistics revealed that US July auto sales had risen to the strongest levels this year behind the $1bn (€700m) clunkers programme, which offers consumers up to $4,500 for trading in older, gas-guzzling vehicles for more fuel-efficient cars and trucks.

Since then, shares of US suppliers Dana Holdings, TRW Automotive Holdings, American Axle and Johnson Controls have surged 44.4%, 14%, 33.8% and 3.8%, respectively, according to Monday trading figures on the New York Stock Exchange.

That increase comes at a crucial time for the long-beleaguered auto industry and its suppliers, with 2010 model cars set to first hit the market in coming weeks.

“It will be interesting to see if the clunker movement acts as a catalyst for industry sales as we move into the new model year vehicles in September and October,” said Bruce Belzowski, assistant research scientist with the University of Michigan Transportation Research Institute.

“Increasing talk of purchasing new vehicles may have a psychological effect on people who are considering purchasing a new vehicle,” he added.

The American Chemistry Council (ACC) estimates that each US-made automobile uses 331 lb (150kg) of plastics, making the automotive industry an important end-use barometer of chemical demand.

Acrylonitrile-butadiene-styrene (ABS) plastic resins, styrene-butadiene rubber (SBR) tyres and isopropanol (IPA), methyl ethyl ketone (MEK) and methyl isobutyl ketone (MIBK) are all used in making automobiles.

Each automobile made in the US contains nearly $2,700 worth of chemical products or chemical processing value, according to the ACC.

The clunkers programme, known officially as the Car Allowance Rebate System (CARS), seems to have given a psychological boost to the broader automotive industry, in addition to consumers.

In the weekly US jobless claims report released last Thursday, the state of Michigan – the auto industry’s hub - was second in the nation with 9,085 fewer claims, due to fewer auto layoffs, the state said.

Likewise, Friday’s US jobs report showed employment in the auto industry rising to 660,700 in July, up from 632,500 in June and 654,200 in May.

“By scrapping junkers and putting newer, more efficient models on the road, we simultaneously stimulate the economy, boost the auto industry and curb greenhouse gas emissions,” said John McEleney, chairman of the National Automobile Dealers Association (NADA).

More than 220,000 vehicles have been sold thus far through the rebate programme, which, as a result, was given an additional $2bn on Friday by the US government.

That could fund an additional 450,000 in additional programme transactions, and would support a sequential improvement in vehicle sales throughout the second half of 2009, according to PJ Juvekar, chemicals analyst with Citigroup Global Markets.

“If we triple the clunker output to about 600,000, I think this makes a much bigger impact,” Belzowski said.

That figure would represent more than 25% of the overall US “clunker” population, he added.

($1 = €0.70)

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By: Ben DuBose
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