American Axle's Road to Ruin

Remember that strike at American Axle (NYSE: AXL) last month where executives apparently performed their jobs so well they deserved to get lavish bonuses as a result? Well, seems they didn't do so well, after all, as the drive-shaft manufacturer for General Motors (NYSE: GM) posted losses that were even worse than expected.

Losses at companies involved in the domestic auto trade really shouldn't be any surprise these days and American Axle is no different. Analysts had been expecting the company which was crippled by the strike and realizes 80% of its revenues from GM to post losses. Only they didn't expect them to be this large.

Moreover, the strike didn't just impact the axle- or carmaker, since when GM idled some 30 plants in the wake of the work stoppage other parts suppliers equally dependent on trucks rolling off the assembly line were affected as well. Magna International (NYSE: MGA) counts on GM for a quarter of its sales, Lear (NYSE: LEA) relies on it for 29%, and Tenneco gets a fifth of their revenues from the truck maker.

Better situated are companies like Borg Warner (NYSE: BWA) which has been realizing a declining percentage of sales from domestic auto makers while seeing revenues from Volkswagen, Renault, and even Caterpillar (NYSE: CAT) and John Deere (NYSE: DE) assuming a larger portion.

The strike cost American Axle some $275 million in sales, or 64% of the total decline in sales this quarter, while profits fell $1.73 per share from the walkout. Yet considering what the union gave up, the axle maker ought to save some $300 million per year. It's also expecting 2,000 hourly employees to take an early buyout offer, they'll be cutting back 350 salaried positions, and the manufacturer will be slashing its dividend by 87% to just $0.02 per share.

Let's give management their due, too. While hacking away at everything in the business to cut costs, they've also decided to cancel the executive bonus program too.

American Axle has more worries than just GM. News that Chrysler would stop offering leases on its vehicles because of losses its financial arm is taking has to be a concern because the parts supplier gets another 12% of its revenues from Chrysler.

With trucks sales falling and questions being raised about Chrysler's ongoing ability to sell cars, the picture is far from rosy at American Axle. On the bright side, at least American Axle has seen the light on management bonuses during such a time of struggle. What can I say? We're all about silver livings.

 Copyright © 2008 Universal Press Syndicate.