Merrill Lynch Analyst Sees Buying Opportunities As Major Auto Makers Slash Production

Snides Remarks: Does the production cut-back mean that car makers must increase grosses to fewer buyers? So maybe mass market TV advertising is a thing of the past and "Bang-Right-On" targetted media like www.theautochannel.com will finely ge the attention of the big shots at those auto maker ad agencies that want to help their clients sell cars(and keep the account)?...stay tuned to the internet to see what happens...we are.

NEW YORK March 9, 2005; The AP reported that the production slowdown at General Motors Corp. and Ford Motor Co. has resulted in a wave of Wall Street downgrades for automobile suppliers that count the automakers among their biggest customers, but at least one analyst sees a buying opportunity.

Merrill Lynch analyst John Casesa told clients Wednesday they might consider buying up shares of at least two companies that supply products to the auto industry in a bid to capitalize on stock weakness. Although most of Wall Street has downgraded major auto suppliers, Casesa contends things will rebound significantly during the second half of the year.

Among the most significant names offered by Merrill were American Axle & Manufacturing Inc. and Gentex Corp. -- both of which traded higher in morning trade.

"The inventory correction the domestic auto industry is dealing with should once again create opportunities for opportunistic investors in the group," Casesa said. "Although the inventory correction will be painful all the way through the first half of 2005, indeed it will get worse before it gets better."

The research was released to clients on the same day American Axle lowered its first-quarter earnings outlook because of declining orders from customers. The company -- which makes axles, driveshafts and chassis for light trucks and SUVs -- now expects quarterly profit of 25 cents to 30 cents per share compared to a previous outlook of 40 cents to 45 cents per share. Analysts surveyed by Thomson First Call had expected earnings of 36 cents per share.

GM accounts for about 80 percent of American Axle's business, while Ford is also another major customer. The company said it originally envisoned production volume for its major customers would be down 13 percent to 14 percent -- but now sees a drop of 18 percent to 20 percent.

"(This) will be a challenging year for the entire domestic automotive industry -- the same is true for AAM," said Chairman and Chief Executive Richard E. Dauch in a statement. "We expect the production outlook for our major product programs to improve once our customers work through a near-term inventory correction."

But, Merrill Lynch believes American Axle "went down first and fast and should rebound first and fast." The company is expected to benefit as GM replaces its aging line of trucks with new designs, and will likely begin to sees its backlog grow.

Shares of American Axle -- despite the warning -- rose 69 cents to $25.76 in afternoon trade on the New York Stock Exchange. The stock is trading just off its 52-week low of $24.65 set on March 4.

Meanwhile, Gentex -- whose shares rose 6 cents to $33 on the Nasdaq -- is expected to benefit because of a fast-growing and diversified sales base, according to Merrill. The stock is trading just above its 52-week low of $30.19 set on Oct. 19.

The brokerage also contends that Gentex is "backstopped by a share buyback program triggered by a stock price in the $30 to $32 range, and a cash-rich, debt-free balance sheet."

Suppliers have already been struggling during the past year because auto makers have battled to cut costs in the face of rising steel prices. GM announced a 12.7 percent drop in February sales, and said it will cut first-quarter production by an additional 45,000 vehicles and some 139,000 during the second quarter.

Meanwhile, Ford plans to cut production by an additional 10,000 vehicles in the first quarter and 11,000 vehicles in the second quarter. Ford recently announced a 3 percent decline in February sales.