EquityResearch2October2019COREBarclaysCapitalInc.and/oroneofitsaffiliatesdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.PLEASESEEANALYSTCERTIFICATION(S)ANDIMPORTANTDISCLOSURESBEGINNINGONPAGE65.Restricted-InternalU.S.Autos&AutoParts3Q’19Preview:Macro,GMstriketoweighonresults3Qearningsunlikelytoprovidereboot.WhileautostocksenjoyedabriefrallyinearlySeptember,therallyhassincebeensold(likesomanybeforeit)and3-monthstockperformanceremainslargelynegative.Wedon’tseemuchpotentialforareliefrallyheadinginto3QEPS,especiallyasglobalmacroremainsweak,andthemarkethassofarlargelylookedthroughtheGMstrikewithconsensusearningsyettoreset.Overallmacroremainssoft.For3Q19,lightvehicleproductioninChinafell7.7%y/y(vs-5.3%ingoing),Europe-0.8%(vs+3.5%ingoing)andNorthAmericarose+1.7%(vs+1.7%ingoing).Forthefullyear,wenowexpectGLVPtodecline-5.4%(vs-3.6%previously)andagainin2020(Barclays-1.2%vs+0.2%previously)beforeslightlyreboundingin2021(Barclays+1.4%vs+1.5%previously).NorthAmerica3Q19–GMstrikecosts~100kunitsofproduction.TheGMstrikehasnot(contrarytoinitialexpectations)settledquicklyandthepartiesseematoddsonbasicissuesoftemporaryworkersandplantclosures–whichthreatenthejobsecurityoftherankandfilemembers(whoarealsodistrustfulofunionleadership)whilecriticaltoGM’sneedfordownsideflexibility.Thestrikecost~100kunitsofproductionin3Q,andevenifsettledquicklyin4Q,westillexpectonly~25kofproductiontobemadeup.AmericanAxle(AXL)isthemostexposedsupplier,followedbyLear(LEA)andMagna(MGA).Keyfocusstocksinto3QEPS:GM,AXLandLEA–riskofmarketfocusingonnegativeearningsrevisionsfromGMstrike.WhilewecontinuetobelieveGMandAXLareundervalued,andsofarthemarkethaslargelylookedthroughthestrikeimpact,earningsrevisionsfor3Q’19willlikelybenegative;andwebelievethatanypriceweaknesswillbepunishedashedgefundswaitfornega...
