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Tickers in this Article: JCI, MGA, TRW
The auto-parts business is a difficult business with industry conditions that have decimated many participants. It is a business characterized by slowing demand in mature markets. We're going to take a look at three companies of markedly different sizes and focus. These companies have not just survived but have prospered in a difficult business.

Charged Up
Johnson Controls (NYSE: JCI) is the largest of this trio. It has a market capitalization of $22.4 billion and generates $33.2 billion in sales. JCI has gone through several years of restructuring. It has also made several acquisitions in non-automotive sector businesses in an effort to lessen its reliance on auto parts.

The company's replacement battery business is considerably more stable than many products in the automotive business and it is developing an alternative battery system that is still quite some time away from commercialization.

JCI's other automotive business is interiors. The two businesses make up roughly 60% of JCI's revenue combined. The remaining 40% comes from the company's building-controls business.

Building-control products are designed to help increase energy efficiency and reduce infrastructure costs in large commercial buildings. While soaring oil and energy prices may hurt auto sales, they help the building controls business.

JCI's financials support the company's strategy. Growth in earnings is averaging 13.4% for the prior three years and it came in at 34.6% last year. Johnson Controls' 14.2% gross margin nets out at 3.3%, and its return on equity is a respectable 15.4%. The company is looking to further expand its non-auto businesses while it expands its auto-related business away from Detroit's Big Three to Eastern Europe and Asian markets.

An Entrepreneurial Spirit
There is a lot to like about Magna International (NYSE: MGA). The company makes everything from body panels and door hinges to entire cars. Auto manufacturers will outsource the entire manufacture of low-volume niche cars to Magna, thus avoiding the huge investment required to tool up to do it themselves, particularly in Europe. In fact, Magna has been experiencing a 10% growth in content-per-car both in North America and Europe.

What separates MGA from its competitors is its entrepreneurial corporate culture. Even plant and division managers are given a great deal of autonomy in running their local organizations. There is also incentive compensation when they are successful. The company has less than 10% debt and generates cash flow about 4% of its $24.18 billion in sales.

The one thing to dislike about Magna is that it is a family business. Common share holders have to buy the Class A shares while the Stronach family owns the super-voting Class B shares. Although the company has a market capitalization of $10 billion, Class A share holders are just along for the ride. (To learn more, see The Two Sides Of Dual-Class Shares.)


On Their Own

TRW Automotive Holdings (NYSE: TRW) was acquired by the Blackstone Group from its corporate parent in 2003 and taken public in 2004. Because of this, the firm is leveraged with 50% of its capitalization in debt. The good news is that it is quickly paying it down. Looking at financial results is futile because of the limited history. However, last year the company generated $13.3 billion in sales and has a market capitalization of not quite $3.9 billion.

TRW manufacturers a number of products, from tire pressure monitors to air bags. While the company makes a number of commodity-type products, its future lies in the firm's safety systems.

TRW is the riskiest of this trio at 100-times earnings, and it also has sizable exposure to the Big Three. The flip side of the coin is that consumers and governments in developed countries are demanding greater levels of safety equipment. So far, the management at TRW has done a terrific job in guiding this new firm in a difficult market environment.

A Consolidating Market
Auto parts are a tough business and in recent times many suppliers have fallen by the wayside. These three have survived, prospered and have product suites to successfully compete in a very competitive market place. The market is generally a good judge of expectations. Over the past year, JCI has appreciated about 42%, MGA roughly 30% and TRW has risen approximately 50%. Stay tuned.

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