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Auto industry supplier Magna expands its horizons

As automotive production moves away from its strongholds in North America and Western Europe, component manufacturer Magna International follows its customers.

Automotive manufacturing in Western Europe has been under pressure from low-cost economies for many years, and there is little sign that this shift in the centre of production is about to change. Now, global automotive industry supplier Magna International has announced that it will focus on growing its presence in emerging markets, dedicating as much as half of its record capital spending for 2012 to projects in Asia, South America and Eastern Europe.

Many analysts are pointing to this as the latest sign that the centre of gravity is shifting as the traditional markets of North America and Western Europe stagnate or decline. “We’re expanding significantly in key growth regions,” chief financial officer Vince Galifi told an investor conference in Detroit as Magna unveiled its annual outlook. The company expects its capital spending this year to be up to $1.5bn compared to around $1.1bn last year.

Magna’s core business is what it calls ‘production sales’ - making parts, such as seats and power trains, for vehicle manufacturers. It is banking on the emerging markets pushing worldwide vehicle production above the 100 million unit mark in 2016 for the first time and on its sales outside North America and Europe growing to 20 per cent of total sales by 2014, from 11 per cent last year.

The company forecasts production sales (excluding its smaller vehicle assembly and tooling operations) of between $23.6bn and $24.7bn for 2012. That is split between expected North American production sales of $13.2bn-$13.7bn, European sales of $8.4bn-$8.7bn and the rest of the world sales of between $2bn and $2.3bn.

That outlook is based on expectations that production of cars and light trucks will total about 13.6 million units in North America in 2012 and about 13 million in Western Europe.

Magna plans to build 40 new facilities in the 2011-2014 period, the majority of them in Eastern Europe and what it calls “rest of world,” which includes Asia and South America. By 2014, it will have 28 factories in China, compared with 20 last year; and 16 in South America, compared with 10 in 2011.

“Our outlook demonstrates the traction we are gaining in executing our plan to expand our business outside of our traditional markets,” said Don Walker, Magna’s chief executive officer.

“We are taking advantage of the growth opportunities in new markets and positioning Magna to further serve our customers on global platforms. The combination of our strong position in North America, action plans that are improving results in Europe, and our considerable growth in other regions leaves us confident about our future.”

Magna has been reducing its exposure in the US and Western Europe as car manufacturers continue to close facilities in those high-cost areas, although the bulk of the closures have come in North America.

Magna said it expects total sales in 2012 to be in the range $27.8bn-$29.3bn, compared with a forecast of between $28.1bn and $28.9bn last year.

The 2012 forecast combined with Magna’s expectation of a 5 per cent operating profit margin translates into share profit of between $4.38 and $4.62.

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