Big auto parts suppliers in Canada see a recovery thanks to demand in North America

Article by Christian Andrei, on June 26, 2012

The pent-up demand for new vehicles in North America has contributed to the recovery of the big auto parts suppliers in Canada. This is a trend that’s likely to get faster gradually for the next few years until the decade ends. Nevertheless, the companies would still face challenges with regards to supplies related to car seats to chassis.

Analysts said that to continue to grow, it has to consider more factors aside from the recovering domestic markets. Scotiabank economist Carlos Gomes said that the key for their recovery would be their position in the growing markets since that’s where the growth will originate from. This strategy to enter new markets is a big improvement over the bad outlook in 2009 when multibillion-dollar bailouts by the taxpayers in Canada and the U.S. saved them.

It had appeared back then that General Motors and Chrysler would be headed to a bankruptcy with the possibility that suppliers will go down with them. However, the industry then started to recover, albeit it was slow. This has also helped boost Canada's largest listed parts suppliers -- Magna International Inc, Linamar Corp and Martinrea International Inc. The value of Magna’s shares have more than tripled from early 2009 but continues to be lower than by about 15% below prices in late 2007.

Linamar stock been revived after having a C$2 low point in early 2009 to C$20.37 last Friday. However, they continue to fall behind its October 2007 price of C$26.48. According to several industry experts, the shares of the parts suppliers could be poised to achieve additional gains consumers even when it’s only to replace the increasing number of worn-out older vehicles. Steve Rodgers, president of the Toronto-based Automotive Parts Manufacturers' Association, said that the “demand picture” is currently solid. He pointed out that currently, he expects a recovery from the major downturn of 2009.

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