By Jeff Sanford
Toronto, Ontario -- March 6, 2017 -- This week’s edition of Tuesday Ticker takes a look at a possible loosening of fuel efficiency regs in the US, more acquisitions for Uni-Select, Mark Buzzell of Ford Canada’s views on the future of the auto industry and much, much more!
- The Trump administration may announce as early as March 7 that fuel standards implemented by the Obama administration will be revisited and presumably loosened. Or so says an anonymous source out of the White House (and quoted in several different stories). In the waning days of the Obama administration the Environmental Protection Agency “locked-in” emissions standards through to 2025 that had been negotiated in 2011. The major automakers have reportedly been pressuring Trump to revisit those tough standards. If the regulations are loosened it could be expected that the adoption of aluminum as a material for body panels could slow somewhat.
- LKQ announced last week it completed the previously announced sale of its OEM glass manufacturing business Pittsburgh Glass Works to a subsidiary of Vitro, S.A.B. de C.V., a glass manufacturer based in Mexico. As part of the transaction, LKQ and Vitro entered into a multi-year supply agreement which will see LKQ’s purchase a specified amount of its automotive glass from Vitro at specified prices. Robert Wagman CEO of LKQ, was quoted as saying, "This divestiture, and the retention of the PGW aftermarket glass distribution business, reflects LKQ's ongoing commitment to being a one-stop-shop solution to the collision repair industry in North America.”
- Sherwin-Williams was upgraded by Zacks Investment Research from a “hold” to a “buy” rating in a research report issued last Thursday. The firm has a $346.00 price target on the stock. It’s currently trading around $311. Analysts were clearly impressed by the strong earnings performance Sherwin-Williams demonstrated in the fourth quarter of 2016. The company beat the consensus estimate for earnings and is predicting higher earnings on a year-over-year basis in 2017. Sherwin-Williams should also benefit from the, “planned acquisition of Valspar which will allow it to strengthen its position as a leading paints and coatings provider globally.”
- PPG completed a new waterborne automotive coatings production line at its Wuhu facility in China. Stricter environmental regulations are becoming the norm in China and automakers have increased the use of low-volatile organic compound coatings. The new production line allows PPG to meet the new required standards. The line will also allow PPG to meet, “... the growing demand from automotive manufacturers and parts makers in China.”
- Uni-Select continues on its acquisition spree. The Quebec-based distributor announced two new retail acquisitions in Ontario (in Uxbridge and Sunderland). These operations will be branded under the Bumper to Bumper banner. Through its subsidiary FinishMaster, the company also announced its first acquisitions in the state of Alaska, in Anchorage and Fairbanks.
"This acquisition aligns with our strategic plan to grow in key markets and signifies a major milestone in our history with the first two locations in Alaska. We look forward to continued growth in this new market as well as in existing ones," said Henry Buckley, President and Chief Executive Officer of Uni-Select.
- Axalta announced on March 1 that it has extended its contract with General Motors UK for another three years. The renewal means Axalta will be the official supplier for paint repairs on Vauxhall vehicles in the UK. Axalta will supply three premium brands to GM: Cromax, Spies Hecker and Standox.
Presumably the contract will apply even as GM sells it UK holdings to PSA Group, which has agreed to buy Opel and Vauxhall for €2.2B. Observers have generally lauded the deal, which is expected to generate annual savings of, “€1.7B by 2026” (according to one report. GM will end up a less global company but it will be a more focused one, according to analysts.
Axalta continues to find favour. A story in the financial press this week wonders why the, “... shares have barely budged, rising a paltry 5 percent, even as the company’s results have improved.” The story goes on to note that the S&P 500 is up 15.5 percent in the same period. Some stock analysts are predicting a solid pop in the years to come.
- Ton Büchner, CEO and Chairman of the Board of AkzoNobel released a letter to investors recently. According to the letter, the company has a, “... stronger operational and financial foundation for adapting to market challenges and seizing growth opportunities, evidenced by our €425 million acquisition ... of BASF’s Industrial Coatings business. The transaction included relevant technologies, patents and trademarks, as well as two manufacturing plants in the UK and South Africa and around 350 employees. It’s an acquisition with many positive synergies ...”
Büchner went on to say that, “As expected, market conditions remained challenging and we continued to face an uncertain and volatile economic environment. However, our agility enabled us to adapt and respond.”
The company delivered a “record year financially for our return on sales and return on investment ...” The strong results allowed the company to increase their dividend. A new Global Business Services model has simplified, “... various support functions by identifying common ways of working ... [and is] is freeing up time for the businesses to focus more on customers, innovation and growth. Productivity improvements and efficiency programs have also been delivered within the support functions ... These actions have been instrumental in improving our performance and driving cost savings of over €200 million. They have also helped us create a more engaged workforce, underlined by our engagement levels improving for the sixth year in a row.”
Related Market Notes
- Mark Buzzell took over as President and CEO of Ford Motor Company of Canada at the start of 2017. A recent interview in Canadian Business magazine sees the new Ford chief talking about the deep trends playing out in the auto industry today, including the stated intention of some auto companies to become “mobility providers.” Electric cars are becoming more common. At the same time, Trump is talking about redoing NAFTA, which would have huge consequences for the OEMs that now have manufacturing operations that cross back and forth across many borders.
Buzzell touched on these themes in the interview. “A lot of the announcements you’ve heard from a company standpoint, all of that stuff is going to make its way to Canada. We’ve announced a $4.5 billion plan to bring seven new [electric vehicles] to market by the year 2020. That’s really important here in Canada, because we’re going to have some EV requirements here ... [For] customers who love these vehicles, through electrification, it’s not just better fuel economy, it’s better performance ... We do know that consumers right now may be reluctant to purchase EV vehicles. Last year our industry here [in Canada] was 1.9 million vehicles. Collectively, as an industry, we sold only 30,000 EVs, and less than 10,000 were hybrid or plug-in hybrid vehicles. If we can overcome some of the concerns like range anxiety, if we can work to increase the number of charging stations, our research shows that consumers would be more likely to purchase one of these vehicles. So we’re piloting things like wireless charging stations,” said Buzzell.
On the idea of OEMs as mobility providers, he was quoted as saying, “Our core business is still going to be designing, manufacturing, selling, financing, and servicing our core products: cars, trucks, SUVs, and EVs. But with urbanization, congestion, and [other] issues that we’re facing in our cities, we want to come up with solutions that really do make people’s lives easier. That’s why we’ve invested in companies like Chariot out in San Francisco which is a crowdsourced, shuttle-based service that you can do on your app. We are going to expand the Chariot service in other cities—[I’m] not really sure at this point where we [will] expand it. But Chariot’s given us the ability to really learn customer wants and desires. [And] we’ve bought Go-Bike n San Francisco ... Some tech companies are betting that car ownership will be replaced by sharing or autonomous vehicles that users can just access when they need to. Even if it’s less extreme than that, what’s the role of Ford Canada as a separate entity from the parent company in an environment in which less cars are being made and sold? We don’t see on the horizon car, truck and SUV sales going down that dramatically. In our five-year business plan we see a very healthy automotive industry. [But] we do need to figure out what our mobility solutions are going to be for Canada. We’re sitting here in Toronto—we know there’s already tremendous urban congestion. At Ford Canada, we’re going to have to look to see which mobility products and services make sense to bring here to Canada. So I have nothing to announce today, but those are things that we’re going to have to work on over the next couple of years, is to figure out where we play in Canada, with what mobility services.”
- A Japanese firm, Toray Industries, is planning, “... a major expansion of its carbon fibre business over the next few years, including spending more than 20 billion yen ($176 million) to boost production of automobile components,” according to a report in a Tokyo newspaper. The story goes on to say that, “The automotive side of Toray's carbon fiber business currently centers on exterior parts, with annual sales in the 10 billion yen to 20 billion yen range. The company aims to supply car frame components in the future, as demand for ever-lighter vehicles likely will grow … The company has begun talks with major automakers and plans to begin mass production of frame parts within three years, likely investing around 10 billion yen in the project.” Three Japanese companies, Toray, Mitsubishi Rayon and Teijin, control roughly 60 percent of the global carbon fibre market, with Toray leading the pack. But price competition is expected to intensify as rivals in China, South Korea and Turkey start to commercialize lower-end fibre.
- The US stock market hit another record high last week. The day after Donald Trump's speech to Congress the Dow Jones Industrial Average passed 21,000 for the first time. Investors seemed to be buoyed by Trump's speech, one in which he seemed to making an effort to be more “presidential.” The S&P 500 also hit a new high, touching 2,400 for the first time in intraday trading. Investors are assuming Trump's promise to slash regulations, cut taxes and spend $1 trillion on infrastructure will lead to a new era of heightened economic expectations, a period not unlike the late 1980s when Reagan came to power.