The CEO of Canadian auto-parts supplier Linamar Corp. says the company’s recent stock rout — down 26 per cent so far this month — is “frustrating” and reflects a couple of key misunderstandings about the health of the auto industry.
Linda Hasenfratz said she believes there are two reasons behind the share-price decline, which has outpaced the 8.3 per cent drop in the S&P/TSX Composite Index over the same time period by a factor of three.
First, she said, people are growing increasingly nervous about the economy and what weakness will mean for manufacturers.
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“We’re not seeing that level of pessimism (in reality) and I worry that if people dwell on it too much then it will start to become a reality,” Hasenfratz said in an interview Monday ahead of a dinner speech to the Toronto Region Board of Trade.
Second, people are assuming the pace of technological change in the auto industry is going to leave traditional suppliers like Linamar in the dust — a notion that isn’t reflected in the reality of the industry, she said.
“I don’t know if it’s fear or if people just don’t understand what’s happening in terms of technology in the industry, but they’re leaping to conclusions about things,” she said.
“There’s just so much uncertainty about what’s happening in terms of technology, autonomous vehicles and electric vehicles … that makes people a little bit panicky and then they start selling stock just because you make powertrain parts. It’s kind of crazy.”
I worry that if people dwell on it too much then it will start to become a reality
Hasenfratz said Linamar supplies parts to electric and hybrid vehicles and is diversifying to make sure it’s successful “in a variety of scenarios.”
“We want to be part of (electric vehicles), we want to be part of hybrids and we want to be part of more traditional gas and diesel engines as well because we think there’s going to be a place for all of those in the future,” she said.
But she also pointed out that the buzz around self-driving cars and electric vehicles doesn’t jibe with the reality that she saw at last week’s North American International Auto Show in Detroit, or the reality of auto sales, which are currently dominated by gasoline-powered pickup trucks, SUVs and crossovers.
“It’s interesting to see the difference between what’s being talked about and what’s actually being shown and being purchased,” Hasenfratz said.
Linamar doesn’t provide a financial outlook, but its sales in the third quarter were up 25 per cent from a year earlier and Hasenfratz said she expects to see volume growth in North America, Europe and Asia this year.
She also expects to see some upside from the weak loonie, although it “won’t be substantial” because the company is naturally hedged against the U.S. dollar.
Last week, Linamar competitor Magna International Inc. substantially increased its 2016 revenue forecast to US$34.6 billion-$36.3 billion, up from an earlier forecast of US$31.3 billion-$32.6 billion.