TORONTO — A 46 per cent drop in sales and a US$200-million loss in the first quarter have driven Magna International Inc. (TSX:MG.A) to suspend its dividend to shareholders and preserve cash for its operations.
The 70,000-employee auto parts maker described the first quarter of 2009 as one of the most difficult in its 50-year history due to the unprecedented sales drop experienced by many of its customers, notably General Motors and Chrysler.
Total vehicle industry production skidded by 50 per cent in North America and 40 per cent in Europe compared with the year-earlier period.
Magna disclosed that Chrysler, which filed for bankruptcy protection in the U.S. last week, represents 11 per cent of its sales. General Motors, working on a restructuring plan for presentation to U.S. and Canadian governments by the end of the month, accounts for 19 per cent of Magna’s business.
Co-CEO Donald Walker said it’s too soon to tell what impact their restructuring actions will have on Magna, but there’s no doubt carmaker plant shutdowns “will continue to impact our financial results in the short term.”
GM has said it will close 13 of its U.S. plants for nine weeks this summer, while all of Chrysler’s North American plants have been shut indefinitely until its restructuring is complete.
Walker told a conference call that Magna is participating in supplier receivables protection programs in case Chrysler or GM are unable to meet their obligations. And he said the shutdowns could provide growth opportunities for Magna as smaller suppliers with less cash on their books are forced out of business.
“The near-term shutdowns of all Chrysler plants and several GM plants may be a tipping point for many suppliers on the edge,” he said.
Walker said Magna has already won some business from struggling suppliers and is “hopeful on a number of other takeover opportunities.”
He confirmed that Magna has been in talks with GM’s Opel AG division in Germany about various opportunities, including taking a minority stake in the company.
Magna founder and chairman Frank Stronach told the annual meeting that while Magna may have to further reduce its global workforce — down by about 14,000 since the start of last year — he’s optimistic that many employees will be rehired as things improve “later on this year.”
Magna, based north of Toronto but reporting in U.S. dollars, said Wednesday it lost $200 million or $1.79 per share in the first quarter as revenue fell to US$3.57 billion. This compared with net income of $207 million or $1.78 per share in the year-ago period, when revenue was $6.62 billion.
Magna also announced it would scrap its dividend — previously halved in November to 18 cents per share quarterly — to conserve cash.