Magna hopes to hike profit margin to 4-5% in next 3-5 years

Article by Anita Panait, on June 24, 2013

Magna International Inc. is eyeing to squeeze more profit from its European operations in the future. The supplier is expecting margins of between 4 percent and 5 percent in Europe in the next three to four years, from 1 percent in 2012, according to Magna Chief Financial Officer Vince Galifi. Magna is investing $100 million to shift its manufacturing operations east to cater to increasing demand for German vehicles in the United States.

Galifi remarked to Bloomberg that as they shift to eastern Europe, they are anticipating continued improvement in operating margins. Magna has been making good business through partnership with German carmakers like Mercedes-Benz, BMW, and Volkswagen.

Galifi said the supplier will open eight new manufacturing sites in several eastern European countries like Hungary, Poland, Russia, Serbia and Turkey. On the western side of the region, Magna is only adding a site and is considering trimming operations in Germany and Belgium to cut labor costs.

Mercedes, BMW and VW are taking advantage of the growing demand for their vehicles in the US, where sales are expected to surge to 15.1 million this year from 14.5 million in 2012, according to the average estimate of 18 analysts surveyed by Bloomberg in January 2013. 

With the auto industry recovering in the US, Magna saw its shares soar to record highs this year. Magna's stock surged to a new record of $70.56 on the New York Stock Exchange on June 18, 2013, before closing the week (June 21, 2013) at $68.47. The supplier's shares have surged 37 percent this year, giving Magna a total market capitalization of around $16 billion. [source: automotive news - sub. required]

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