Car part firms limit impact of GM strike

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The Independent Online
LUCASVARITY and Mayflower Corporation, two of the UK's largest car parts makers, brought some relief to the hard-pressed engineering sector yesterday when they revealed that the strike at General Motors would have only a limited impact on their earnings.

LucasVarity, the world's second-largest brakes producer, said that the eight-week strike at the US car maker would cut second-quarter operating profits by pounds 11m, below analysts' expectations of a pounds 12m to pounds 15m hit. The company said the impact of the stoppage, which ended last week, would be partly offset by strong sales of cars and trucks in other markets.

Shares in Lucas rose 8p on the news before succumbing to profit-taking to end the day 0.5p lower at 213p. Fears that the GM strike - which cost the world's biggest car maker $3bn (pounds 1.8bn) and forced it to shut down 27 of its 29 US plants - could lead to large losses for its UK suppliers had led a number of City analysts to cut their investment and profit forecasts.

However, William Mackie, an analyst with broker Credit Lyonnais Securities, said: "It is encouraging that LucasVarity have capped these costs. I think we'll see some confidence return."

Mayflower said that the strike cut sales by about pounds 1.5m in the first half and would reduce earnings by around pounds 4.5m in the second half. The company maintained that, although GM is one of its major customers, buoyant sales of car and truck parts in Europe had helped to cushion the blow.

Tony Lancelott, an analyst with Albert E Sharp, said: "The GM strike does not seem to have been a major item at all, so there is an element of relief on that score."

The Mayflower announcement came as the company reported a 22 per cent increase in first-half profits to pounds 19.6m on turnover up 11 per cent to pounds 208.2m. The dividend payout increased by 20 per cent to 1.1p per share.

The interim figures came against the background of flat profit growth in the US, one of Mayflower's key markets, where earnings were held back by the strike and the prolonged closure of a major truck maker's production line.

Shares in the company, which backed away from an audacious bid for its bigger rival Vickers last year, fell 6.15 per cent to 206p. The fall was largely due to profit-taking following an 8 per cent rise on Monday in anticipation of the results.

John Simpson, Mayflower chief executive, said: "This is an excellent performance in both profits and sales, particularly when set against the background of the GM strike and the planned three-month shut down of the Freightliner Sterling production line."

However, the company sounded a note of caution on the outlook for the rest of the year when it said that market conditions were "getting tougher".

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