Saturday , January 23 2021

Linamar feels minimal impact from high metal tariffs, CEO says



The chief executive officer of Linamar Corp. said the auto parts maker has faced minimal impact from higher tariffs on metal and components, but worries about the trade war's effects on the company's customers.

Linda Hasenfratz said cost increases caused by tariffs on metal and U.S. Taxes on Chinese components are not material for Guelph, Ont.-based Linamar due to part of the domestic supply chains for steel and aluminum. But Ms. Hasenfratz said it is "imperative" the tariffs levied by the U.S., Canada and other trading countries be dropped.

"The concern of course is the impact on many American companies. Ford for instance announced a US $ 1-billion impact from higher tariffs, "Ms. Hasenfratz said Wednesday on a conference call with analysts to present the company's third-quarter financial results.

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Linamar posted a rise in profit almost 6 per cent in the third quarter on higher sales but missed profit expectations.

Revenue rose by 19 per cent to $ 1.8 billion in the third quarter, compared to the same period a year ago. Profit rose to $ 113-million, or $ 1.71 a share, from $ 107-million ($ 1.62) in the year-earlier quarter. Analysts expected per-share profit of $ 1.85, according to Bloomberg.

Guelph, Ont.-based has operations around the world and makes automotive engines, transmissions and other components, in addition to the lift trucks.

In a statement released on Wednesday, Linamar said its transportation division saw sales rise by 5 per cent on more orders from car makers based in North America and Asia. The increase was tempered by a 3-per-cent drop in sales to BMW, Renault and other European car makers affected by new vehicle emissions rules.

Operating earnings for the division fell by $ 21.5-million, or 20 per cent, partly due to higher costs.

Sales in the industrial division, which includes agricultural gear and lift trucks, rose by 86 per cent after the acquisition of MacDon, a maker of harvesting equipment.

Linamar's share price has fallen by 26 per cent on the Toronto Stock Exchange this year, compared with a 5-per-cent drop in the broad index.

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The United States imposed tariffs on foreign steel and aluminum of 10 per cent and 25 per cent, respectively, in March. The protectist wave was started by Donald Trump, U.S. President, who said he wanted to bring jobs and used a controversial national security provision to apply the taxes.

Canada was among the countries that retaliated, levying similar tariffs and including products worth a total of $ 16.6 billion.

Meanwhile, the U.S. and China have swapped tariffs on each other's goods, raising fears of diminished economic growth.

Ms. Hasenfratz said the U.S. tariffs on Chinese parts comprise about half of rises due to trade. She declined to name the amount. The company's U.S. plants buy U.S. metal, which is not subject to tariffs, while the Canadian plants buy use comparatively little steel and aluminum. In any case, Linamar is able to seek rebates from the Canadian government on the tariffs.

Ms. Hasenfratz welcomed the end of talks to reach a new free trade agreement with Mexico and the U.S., saying the terms at the beginning of October are good for the North American auto industry and Linamar.

Linamar has factories in all three countries in the proposed United States-Mexico-Canada Trade Agreement, scheduled to come into effect on Jan. 1, 2020. Under the plan, tariff-free cars must have 75% North American content, up from 62.5% in the North American free trade agreement. Also, 40-per-cent of a car must be paid by US $ 16 an hour, a change that favors plants in the United States and Canada over Mexico.

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Ms. Hasenfratz said Linamar sees "potential upside" in the higher regional content and labour value rules. "We see no key areas of concern at Linamar," she said. "I think it's fantastic that it's behind us. Everybody can get back to business. "


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