GenCorp reportedly has said it is in talks about a potential sale of its underperforming GDX Automotive unit in the latest example of consolidation in the highly competitive parts industry.

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According to Reuters, the GDX automotive unit, which accounts for about two-thirds of GenCorp’s overall revenue, has struggled recently, recording lower sales amid declining volumes and increased pricing concessions to large customers.


GenCorp reportedly did not disclose details about a possible buyer for GDX but said it would take a charge of roughly $US250 million to $300 million against results for the fiscal second quarter related to reclassifying the automotive unit as a discontinued operation.


“The sale of this business is good news,” Derek Dobecki, analyst with Ironwood Capital Management, told Reuters, which noted that automotive suppliers are under intense cost-cutting pressure from their carmaker customers, which are offering huge rebates and other consumer incentives to boost sales and preserve market share.


“At the end of the day, it’s not a good return-on-invested-capital business, and management has realised that. The proceeds they get will help alleviate some of the balance sheet concerns an investor may have,” Dobecki reportedly said.

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The cost pressure and automakers’ desire to streamline their supply chains are forcing industry consolidation, with the number of suppliers expected to continue to shrink over the next several years, Reuters noted.


“It will be a much smaller company, but more focused,” Christopher DeNicolo, debt analyst for Standard and Poor’s Ratings Services, told the news agency.


The report said that, in fiscal 2003, the GDX unit posted a profit of $8 million, down from $36 million in 2002 while GDX’s 2003 sales totaled $786 million, down 3% from 2002, making up about 65% of GenCorp’s overall sales of $1.2 billion for the year.


In the fiscal first quarter of 2004, ended Feb. 29, the GDX unit posted a loss of $14 million, compared with a profit of $5 million a year earlier, as the unit’s quarterly sales slipped to $184 million from $191 million, Reuters added.