New fuel rules may help BorgWarner, Johnson Controls

Published: 5/20/2009 3:36 PM

Auto parts makers BorgWarner Inc. and Johnson Controls Inc. may benefit from President Barack Obama's new fuel-economy standards as car companies seek more components that cut gasoline use, analysts said.

BorgWarner may raise sales with its turbochargers that increase the power of small engines, while Milwaukee-based Johnson Controls would further profit from its lithium-ion batteries used for hybrid-electric vehicles, analysts said.

"The revised requirements reinforce our views that BWA and JCI could benefit from stricter fuel-economy standards," Brian Johnson, a Chicago-based analyst with Barclays Capital who rates the companies "equal weight/neutral," wrote in a note yesterday.

BorgWarner has a facility in Addison while Johnson Controls has locations in Arlington Heights, Sycamore, Glen Ellyn, Elmhurst, Chicago and Mt. Prospect

Partsmakers are struggling from cutbacks by customers such as General Motors Corp. and Toyota Motor Corp. U.S. auto sales fell 37 percent this year through April, according to Autodata Corp., based in Woodcliff, New Jersey. Obama said yesterday automakers must meet average efficiency standards of 35.5 miles per gallon by 2016, four years sooner than previously planned.

"Hybrid technology is the only technology that can deliver this level of fuel economy," Alex Molinaroli, president of Johnson Controls Power Solutions, said in an e-mailed statement.

Parts Applications

BorgWarner generally views the new rules "positively" as it creates "one common standard that improves fuel economy, reduces emissions, and is performance-oriented," spokeswoman Erika Nielsen wrote in an e-mail.

The company's turbochargers and parts for diesel vehicles are among its products that "carryover with ease into a number of hybrid and electric-vehicle applications," she wrote.

TRW Automotive Holdings Corp., a provider of fuel- reducing electric steering systems, may benefit from the rules along with BorgWarner and Johnson Controls, wrote Rod Lache, a New York-based Deutsche Bank AG analyst, in a note to investors yesterday.

The companies "are amongst direct beneficiaries of increased fuel economy content in vehicles," he wrote. Lache rates BorgWarner and TRW "hold," and Johnson Controls "buy."

John Wilkerson, a spokesman for Livonia, Michigan- based TRW, declined to comment on the rules.

BorgWarner, based in Auburn Hills, Michigan, rose 31 cents to $30.13 at 4:03 p.m. in New York Stock Exchange composite trading. Johnson Controls fell 8 cents to $19.87. TRW fell 60 cents to $8.49.