WRAPUP 1-Auto suppliers face higher costs, economic slowdown

Thu Jul 28, 2011 11:58am EDT

* Commodity costs to cut into Goodyear tire unit's margins

* Being lean needed to thwart challenges -Federal-Mogul CEO

* BorgWarner shares rise as much as 12.3 pct

By Deepa Seetharaman

DETROIT, July 28 (Reuters) - U.S.-based auto suppliers are contending with higher commodity costs and a slowdown in the global economy that will pressure them to wring out more efficiencies and remain lean through the rest of the year.

Many automotive suppliers, including BorgWarner Inc (BWA.N), Federal-Mogul Corp (FDML.O) and Goodyear Tire & Rubber GT.N posted second-quarter results on Thursday that surpassed estimates.

BorgWarner shares shot up as much as 12.3 percent on Thursday, enjoying their biggest jump in more than two years.

But companies also noted that the expected economic recovery has not yet taken hold. Some tempered their outlook for the second half of the year, echoing sentiments from other suppliers and automakers Ford Motor Co (F.N) and Chrysler Group LLC (FIA.MI) earlier this week.

Earlier this week, Ford said full-year auto sales in the United States would fall toward the lower end of its 13 million to 13.5 million range, including big pickup trucks. [ID:nN1E76P00N]

"When we look at the global market for the quarter, it is clear for the first time in a couple of quarters (there has been) a global environment slowdown," Federal-Mogul Chief Executive Jose Maria Alapont said in an interview.

Shares of Federal-Mogul, which is controlled by billionaire investor Carl Icahn, rose as much as 4.9 percent and were still up 2.4 percent at $20.11 at midday.

Dana Holding Corp (DAN.N) shares were down 4 cents at $17.26 after analysts said they were disappointed with the company's second-quarter margins and outlook for the rest of the year.

Goodyear Tire & Rubber said higher raw material costs would make it tough to maintain profit margins in its tire business in North America in the second half of the year. Shares were flat in midday trade after rising as much as 6.3 percent and as falling as much as 2.7 percent on the New York Stock Exchange.

Goodyear sees those costs rising more than 30 percent for the rest of the year. BorgWarner reiterated that raw material costs would cost the company between $35 million and $40 million more in 2011 than in 2010.

Being nimble will allow suppliers to withstand the economic storms, executives said in interviews and on analyst calls Thursday. Federal-Mogul, for example, has many temporary workers, which allows the company to scale back its headcount if the market goes sour.

"If you push globalization, but with no efficiency, you're going to see challenges," Alapont said.

Federal-Mogul posted net income of 64 cents per share, beating the average analyst estimate of 58 cents per share, according to Thomson Reuters I/B/E/S. Dana reported an adjusted profit of 45 cents per share, above the 36 cents per share analysts on average had expected.

Goodyear reported an adjusted profit of 65 cents per share, blowing past Wall Street estimates of 27 cents. BorgWarner's profit of $1.12 per share beat out the average expectation of 99 cents per share. (Reporting by Deepa Seetharaman, editing by Matthew Lewis)

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