DETROIT - Although U.S.-based auto suppliers aren't showing uniform gains in their quarterly earnings, the results show that they are showing promise—and in some cases prospering—by moving major operations overseas.
Continued growth in Asia and other markets beyond North America helped TRW Automotive Holdings Corp. report a 7 percent increase in second quarter net income on Wednesday. Quarterly earnings rose to $97 million, or 94 cents a share—beating Wall Street's expectations.
Sales in lower-cost regions such as Asia also helped offset North American declines for Visteon Corp., which reported a net loss of $67 million, or 52 cents a share. The loss compared with net income of $50 million in the same quarter last year.
The loss for the former Ford Motor Co. parts operation came amid production cuts from Ford—Visteon's largest customer—and a multiyear restructuring plan that includes closing several facilities in the U.S. and Europe.
But Visteon executives say they're making progress in diversifying sales and growing business, particularly overseas.
Product sales to Ford, which represents 39 percent of Visteon's total sales, fell 16 percent or, $216 million, to $1.11 billion. But sales to other customers increased 15 percent, or $230 million, to $1.72 billion—representing 61 percent of the total.
Michael Johnston, Visteon's chairman and chief executive, said Wednesday in a conference call with reporters and analysts that Asia represents 33 percent of sales, more than North America and just behind Europe.
The Van Buren Township-based company said as of June 30, more than half of its manufacturing and one-third of its engineering workers are in lower-cost regions. Visteon said it plans to have three-quarters of its manufacturing workers and half of its engineering workers in those regions by 2009.
And by that time, Visteon officials said, they predict that 50 percent of revenue will come from Asia.
''That kind of jumped out at me,'' said Kirk Ludtke, an analyst with CRT Capital Group LLC in Stamford, Conn. ''There aren't a lot of suppliers who expect to generate 50 percent of their sales in Asia.''
Still, Ludtke and others say it's a milestone in a shift that has been under way for a while among suppliers and their customers.
Ludtke said that once Visteon closes facilities in Connersville and Bedford, Ind., as part of its restructuring, it will significantly shrink its U.S. work force covered by collective bargaining agreements—now at 2,100.
''That leaves 800 workers under collective bargaining agreements in the U.S.—total—at a U.S.-based company with over $10 billion in sales,'' he said.
TRW President and Chief Executive John Plant said in a conference call Wednesday that the Livonia-based company has ''vastly diversified'' into the European market, and it's a bigger portion of its sales than the U.S.
TRW also sees itself growing with its Asian sales base in vehicle manufacturing.
''We would like to see greater balance,'' Plant said. ''If that means further increase in our Asian segment, that would be great.''
Hanover, Germany-based Continental AG said Wednesday that its second-quarter net income rose by 50 percent, earning $415.3 million. It, too, has shifted production from high-cost areas like Germany and the U.S. to Eastern Europe and Latin America.
Recent quarterly profits by General Motors Corp. and Ford also are largely due to the money they made overseas.
Earnings growth in Europe, Latin America, Asia and other areas eclipsed lingering problems in North America for GM, which announced its earnings Tuesday. Although GM improved in its back yard, it still posted a net loss of $39 million.
''(The automakers) would much rather deal with suppliers that they're familiar with that have local manufacturing,'' said Aaron Bragman, a research analyst based in Troy for Global Insight, an economic research and consulting company.
''It puts the pressure on the domestic suppliers ... to get that, either through joint venture investments or through opening up wholly owned operations in those countries.''
Kevin Tynan, senior automotive analyst with New York-based equity research company Argus Research, agreed that suppliers have no choice but to follow opportunities far from home.
''At the product level, there's very little differentiation,'' he said. ''What you really have to be is especially lean. ... They could probably try to wring costs out of North America until they're blue in the face or bankrupt.''
Associated Press Writer Corey Williams contributed to this report.
