BorgWarner Inc.BWA

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

The global movement toward cleaner, more fuel-efficient vehicles is nothing but good news for BorgWarner. Its engine and drivetrain groups produce plenty of parts that will become even more in demand over the years due to fuel regulation and other environmental Read more

Bulls Say

Management expects global light vehicle demand for diesel turbochargers to increase 45% by 2014 and gas turbocharger demand to increase 150% by 2014.

BorgWarner's Detroit Big Three exposure is not as large as some other suppliers'. Volkswagen VOW, Ford F, and Daimler DAI were the firm's three largest customers and make up about one third of revenue.

BorgWarner's diesel cold-start products could see growth as well. Diesel provides 30%-40% better fuel economy, so consumers can pay that much premium over gas and still break even when factoring in the fuel savings.

The company has been successful at building relationships and winning business with Asian and European manufacturers that are building factories in the U.S. and elsewhere.

Growth rate for demand in BorgWarner's products should exceed the overall growth rate of the auto industry. Read more

Bears Say

BorgWarner faces powerful customers that dictate price decreases as they compete for share in mature auto markets.

Like most auto parts suppliers, BorgWarner has significant fixed costs so a small slowdown in sales could translate into a very large drop in profits.

Raw-material costs are volatile, which makes margin expansion very difficult.

Although diesel technology is expected to grow and gain market share, many automakers are investing heavily in hybrid engines and other technologies that could capture a portion of the planned diesel growth.

The market is very reluctant to pay a premium for the earnings of even good auto parts suppliers because of these firms' ties to the auto industry. Read more

Strategy

BorgWarner seeks to capitalize on the shift to smaller cars in the U.S. while continuing to expand overseas. Turbochargers and dual-clutch transmissions will be the main products to further this plan, Read more

Management

Overall, BorgWarner has been a well-run company that has generated above-market returns since its 1993 spin-off from Borg-Warner Security Corporation. Tim Manganello has been chairman and CEO since 2003. Manganello's work in the auto industry goes back Read more

Profile

BorgWarner is a Tier 1 auto parts supplier with 2008 revenue of $5.3 billion. The company has two segments. The engine group makes turbochargers, emission systems, and other Read more

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