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Moving the Market

In light of General Motors' (NYSE:GM) November 18th initial public offering, which was anticipated to be one of the largest in US history, we examined the performance of automakers and their suppliers from the start of the "Cash-for-Clunkers" program in July 2009, through November 17th. When the NHTSA started the "Cash-for-Clunkers" program on July 24, 2009, more than $2 billion was allocated. As a result, about 675,000 cars were sold with slightly less than half of them being domestically manufactured (49 percent). These sales clearly boosted the performance of the Big Three domestic automakers: General Motors, Chrysler, and Ford (NYSE:F).

Our Outlook

While the Big Three clearly profited during this time period, we looked at other sectors that also could have reaped the benefits of such a large scale program. Specifically, we found impressive performance data among the top auto suppliers of domestic auto manufacturers, and found that in particular, a significant number of these top performing companies hailed from two sub-sectors: Powertrain Suppliers and Body & Chassis Manufacturers.

Revere Research Reveals

Over the past 15 months, we tracked the performance of 21 key suppliers that earn more than 10 percent of their revenues from one or more of the Big Three, and compared their average performance to the S&P 500 in the same time period.

We found that since July 24, 2009, a portfolio of these suppliers gained 84% in value, while the S&P 500 has only gained 20.6%.

Top Three Suppliers Since Cash-for-Clunkers Began in July 2009
Company Name Ticker % Return
Dana Holding Corp DAN 369.1%
Material Sciences Corp MASC 235.2%
TRW Automotive Holdings Corp. TRW 192.9%

Given the current spotlight on GM, we researched how eight key suppliers to GM have performed since the company filed its IPO notice on August 18, 2010. These eight suppliers have gained more than 15.2% since the filing, while the S&P 500 has only gained 7.9% within the same period.

In addition, we looked at how various sub-sectors of the auto supply industry have fared in the time since the Cash-for-Clunkers program began. Both Revere's Powertrain Index, which includes companies that build transmission parts, and Body & Chassis Index that includes companies that manufacture body frame parts, significantly outperformed the S&P 500 in the given time frame.

Revere Powertrain Index Top-Performing Companies Since July 2009
Company Name Ticker 1-Month % Return 1-Year % Return % Change Since Cash-for-Clunkers
Clean Diesel Technologies, Inc. CDTI 1700.5% 790.3% 490.8%
Sauer-Danfoss, INc. SHS 34.5% 220.6% 480.8%
Tenneco, Inc. TEN 7.4% 119.3% 112.7%
Revere Powertrain Index n/a 8.6% 57.7% 97.5%
Revere Body & Chassis Index Top-Performing Companies Since 2009
Company Name Ticker 1-Month % Return 1-Year % Return % Change Since Cash-for-Clunkers
American Axle & Manufact. Holdings, Inc. AXL 23.2% 59.2% 372.3%
Dana Holding Corp. DAN 6.2% 99.7% 298.3%
Hawk Corp HWK -0.3% 200.7% 250.0%
Revere Boday & Chassis Index n/a 5.6% 80.7% 160.9%

Conclusion

While the Cash-for-Clunkers program benefited automakers by helping to increase sales, the performance of their suppliers saw an even more dramatic increase.

As a result of GM's IPO, we think this might unlock some pent up demand, so suppliers of GM are well-positioned to benefit from any increase in consumer purchases.

Among the suppliers to automakers, the Revere Powertrain and Body & Chassis indices have shown that these two sub-sectors have continued to outperform the market at levels that are significantly higher than some of their peers.

Disclosure: No positions

Source: General Motors IPO: Auto Suppliers Cash In