TORONTO – Shares in Magna International Inc. (TSX:MG.A) crumbled to their lowest level in seven years on Thursday as higher gas prices and dismal auto sales numbers left the company’s stock struggling.
The drop came on the heels of a report from investment bank Goldman Sachs which has the company rated as a “sell.” That was driven by its “above average” exposure to the Big Three automakers, which account for 53 per cent of its sales, Goldman Sachs analyst Patrick Archambault said in a note.
He has also predicted that downside risk could be further exacerbated by the rising cost of raw materials.
Steel prices could impact earnings before interest, taxes, depreciation and amoritization by five per cent this year, and 11 per cent next year.
Magna lost $3.72, or five per cent, of its value, falling to close at $62.27 on the Toronto Stock Exchange. Earlier in the session, shares slid to a low of $61.93 with a 52-week high of $102.
The company, which makes auto parts for vehicle manufacturers, has felt the rippling effects of an auto industry that’s suffering a major downturn in sales.
Last week, Magna said it would cut 400 jobs at a plant that makes pickup truck frames for General Motors Corp. in St. Thomas, Ont.
GM is one of the automakers that has been hardest hit by stalling sales for its gas guzzling SUV and truck models.
At the same time, Chrysler was denying rumours which said the auto giant could be preparing to file for bankruptcy protection.
“What can they do about it? In the short term not a whole lot,” said one analyst who was willing to discuss Magna’s future only if his name was withheld.
“They’ll have to cut costs as fast as they can, and the St. Thomas plant is an example of that… but you can’t change the business very fast, simply because of the way the industry works.”
Separately, Porsche AG said Thursday that it has chosen the Magna Steyr division of Magna to assemble its Boxster and Cayman luxury sports cars once the German carmaker’s contract with Finnish manufacturing partner Valmet Automotive expires in 2012.
After a call for tenders, Porsche chose Magna’s Austrian assembly division as its future contract manufacturer “because it submitted the most financially attractive offer, and because it is in a position to take on development tasks for Porsche sports cars.”
The financial terms of the agreement were not made public.
Porsche will supply the engines and various components, but “synergies arise from the numerous supply relations between Porsche and the Magna Group” which already provides significant parts to Porsche.