AUTO AND HOUSING LED THE REVIVAL, and now?

BorgWarner to cut 850 jobs, trims outlook
Auto parts maker stock dives on news; company blames cost cutting measures at Big Three automakers and higher commodity prices.
September 22 2006: 12:39 PM EDT
CHICAGO (Reuters) -- Auto parts maker BorgWarner Inc. on Friday said it would slash 13 percent of its North American work force and cut its 2006 earnings forecast, becoming the latest U.S. supplier to warn that a slump in orders from Detroit-based automakers would hurt results.
Shares of BorgWarner (down $1.72 to $52.77, Charts) fell almost 4 percent on Friday, touching their lowest level since June 2005. Shares in most other U.S. parts makers also sagged for a second consecutive day following a warning by Lear Corp.
The job cuts will cost BorgWarner a charge of 15 cents a share in the third quarter.
Several U.S. parts suppliers have warned that cuts at General Motors Corp. (down $0.49 to $30.44, Charts), Ford Motor Co. (up $0.18 to $7.94, Charts) and DaimlerChrysler AG's (up $0.05 to $50.05, Charts) Chrysler Group would hurt results, and BorgWarner is not likely to be the last, analysts said.
"Despite the short-term pressures, BorgWarner remain well-positioned for the long-term," Morningstar analyst John Novak said. "We expect more of these announcements from the large suppliers and significantly more instability in the Tier II and Tier III supply base over the coming quarters."
Job cuts by October
BorgWarner said it would cut about 850 jobs across its 19 operations in the U.S., Canada and Mexico by the end of October, citing in part, production cuts at the Big Three automakers and a rise in commodity prices, mainly the nickel used in turbochargers.
The supplier trimmed its 2006 earnings per share forecast to a range of $3.95 to $4.10, excluding 15 cents per share for restructuring, from a range of $4.35 to $4.60. Analysts on average expect $4.42 per share, before special items, according to Reuters Estimates.
Auburn Hills, Michigan-based BorgWarner sees 2006 sales at the low end of its outlook of 5 percent to 7 percent, but expects to be back on track for 7 percent to 9 percent growth in 2007.
The company supplies powertrain components, including components for all-while drive vehicles that are supplied to Chrysler and Ford. North American operations were affected by the Big 3 cuts and other customers, the company said.
More than a one-customer issue
"This is more than a 'one-customer, one product' issue," Chief Executive Tim Manganello said in a statement.
In a conference call, BorgWarner executives said the majority of the restructuring costs will be cash for employee severance taken in the third quarter with a payback to the company in 2007.
"We are trying to salvage as much of the fourth quarter as we can and position ourselves to be in a better position starting with the first of the year 2007," Manganello said on the conference call.
All of the traditional Detroit-based car companies have taken cost-cutting steps in response to slowing sales for pickup trucks and sport utility vehicles, an area of the market they have dominated.
GM and Ford are closing more than two dozen plants and cutting over 75,000 jobs. Chrysler said earlier this week it was cutting current-quarter production by 24 percent to reduce inventory of slow-moving trucks and SUVs.
Chrysler has said it is considering other cost-cutting steps as well.
BorgWarner's cuts are similar to North American restructuring efforts by Johnson Controls Inc. (down $1.13 to $68.06, Charts) and Lear, J.P. Morgan analyst Himanshu Patel said in a note.
Patel expects more warnings in coming weeks from large U.S. suppliers, naming American Axle & Manufacturing Holdings Inc., Visteon Corp., Johnson Controls, ArvinMeritor Inc. and Gentex Corp. as most at risk.
Lear on Thursday warned that U.S. carmakers' production cuts would hurt results, which followed warnings by suppliers TRW Automotive Holdings Inc. and Navistar International Corp.