Lear opens window into automotives' travails

With a 44% drop in net sales and a net loss of $264.8 million, Tier One supplier Lear’s first-quarter results reflect the broader pain being experienced by the automotive sector. On May 14, Lear reported net sales of $2.2 billion for the first three months of the year, saying that its U.S. annual sales rate has stabilized at 9.5 million units, compared to roughly 15 million vehicles in 2008.

In a May 14 earnings call, Lear chairman, president, and CEO Bob Rossiter said production was down sharply in North America and Europe, forcing the company to minimize operating costs and accelerate restructuring.

Lear continues to stress sales and production outside the U.S., registering 68% of its net sales outside North America. Looking ahead, Lear says although there is a significant amount of plant downtime scheduled for North America during the second quarter, it forecasts that over the second half of 2009 production will improve.

Lear also laid out the breadth and depth of automotive pain across the globe, saying year over year first quarter production dropped in North America (-51%), Europe (-40%), Asia (-29%), and South America (-18%). In North America, Lear said “the Domestic Three” only produced 900,000 vehicles, down 55%. Lear’s top 15 platforms were off 42% to 500,000. Even in go-go China, vehicle production of 1.9 million reflected a 2% contraction.

The day before it released its earnings, Lear announced that its lenders had agreed to extend the waiver of covenant defaults under its primary credit facility to June 30, with the company reporting it had $1.2 billion in cash and cash equivalents. According to a Reuters report, the company is looking at a variety of means to restructure, including the possibility of outside investors, as well as bankruptcy, with speculation it would be forced into Chapter 11 if General Motors declares. —[email protected]