It hasn’t been an easy go for Canada’s autoparts sector over the past couple of years. Outside of industry leader Magna International (TSX:MG), autoparts companies have been in a steady decline. In some cases, they have lost almost 50% of their value.
As alluded to, the lone outlier has been Magna whose status as a worldwide leader has enabled it to weather the storm better than most. Despite this, it has still only gained 6% over the past 2 years.
Unfortunately for investors, the recent uptick in prices may be short lived. This past week, General Motors U.S. workers went on strike. It is the first strike in the automotive industry in over a decade. The strike is expected to last through the weekend and the ripple effects are already being felt in Canada.
The Oshawa GM plant has been cutting shifts amidst a part shortage. Since Canada and the U.S. autoparts industry is highly integrated, the effects of the strike will be immediately felt by suppliers.
According to industry analyst Dennis DesRosiers
“the first impact will be suppliers — 85 per cent of auto parts made in Canada are shipped to the U.S….some of that could be halted.”
Tyson Jominy, vice-president at J.D. Power’s Power Information Network agreed:
“The parts suppliers will feel this very, very quickly”.
In particular, smaller suppliers such as Martinrea International (TSX:MRE) which supplies parts to the Cami assembly plant in Ingersoll could begin to feel the pinch sooner than others. Cami produces engines for the Equinox vehicle from a GM plant in Flint, Mich. A plant, whose workers are currently manning the picket line.
Magna has several production facilities that supply various products to GM plants south of the border. Scott Worden, Manager of Corporate communications at the company said:
“Like the entire supply base, we are in wait-and-see mode. We would like to see both sides get back to the negotiating table, working towards an agreement.”
Worden further stated that
“it would be premature to comment on the potential impact to our operations right now.”
The automotive industry has enjoyed an unprecedented period of labor peace. “Ontario’s automotive parts sector is disproportionately married to the fortunes of the Big Three (GM, Ford, Chrysler)” (Flavio Volpe, president of the Auto Parts Manufacturers’ Association).
The GM strike is a reminder that a lasting work stoppage can send ripple effects across the industry. For Canada’s autopart companies, it is yet another challenge for them to overcome. In the meantime, its best for investors to sit on the sidelines.
A short-term strike is manageable, however a long-term strike could have devastating consequences at some of the smaller autopart companies. So if you’re looking to buy these Canadian stocks, approach with caution.