Magna International Inc. will gear up efforts to expand in growing markets this year, dedicating as much as half of its record capital spending this year to projects in Asia, South America and Eastern Europe.
It's the latest sign that the centre of gravity for Canada's largest auto-parts maker, one of the country's global champions, is shifting as its traditional markets of North America and Western Europe stagnate or decline, and is following other auto makers that are pouring billions of dollars into China, Brazil and India.
"We're expanding significantly in key growth regions," chief financial officer Vince Galifi told an investor conference in Detroit on Wednesday as Magna unveiled its annual outlook.
Capital spending will amount to between $1.3-billion (U.S.) and $1.5-billion this year, compared with between $1-billion and $1.1-billion in 2011.
Magna sees the growing markets pushing worldwide vehicle production above the 100 million unit mark in 2016 for the first time and its sales outside North America and Europe growing to 20 per cent of total sales by 2014, from 11 per cent last year.
It plans to build 40 new facilities in the 2011-2014 period, the majority of them in Eastern Europe and what it calls "rest of world," which includes Asia and South America. By 2014, it will have 28 factories in China, compared with 20 last year; and 16 in South America, compared with 10 in 2011.
It has been closing operations in Canada, the United States and Western Europe as auto makers have closed factories in those high cost areas, although the bulk of the assembly plant closings have come in North America.
Magna said it expects total sales in 2012 to range from $27.8-billion to $29.3-billion. That compares with a forecast of between $28.1-billion and $28.9-billion in 2011.
The 2012 forecast combined with Magna's expectation of a 5-per-cent operating profit margin translates into share profit of between $4.38 and $4.62, CIBC World Markets Inc. analyst Mike Willemse said in a note to clients yesterday. Mr. Willemse is forecasting share profit of $4.65 and the consensus estimate among analysts is $4.57.
He and other analysts said investors will likely view Magna's guidance as conservative given what is expected to be increased auto production in North America this year as Japan-based auto makers recover from the March earthquake and tsunami in Japan, which choked off production for months.
Honda of Canada Mfg. in Alliston, Ont., for example is expected to hit its full capacity of 390,000 vehicles this year, compared with less than 300,000 last year.
But Magna is also dealing with some money-losing operations in Europe, where sales and production estimates are at best uncertain because of the sovereign debt crisis.
"We're making headway for sure," on those operations, said chief executive Don Walker, who added that, if the auto industry is affected by a European recession, he'd prefer that it happen this year rather than in 2014.
Magna also faces a key decision this year on whether to inject more cash into a money-losing, electric-vehicle joint venture with its founder and former chairman, Frank Stronach. He is the controlling shareholder.