The Long Term Bet on Vehicle Occupant Safety Industry

Published on Wednesday, 18 November 2009 22:18 Written by Flowtrades Blog

There are several compelling reasons to look into starting a long term position in the vehicle occupant safety industry.

Even as car production has taken a tumble during this economic crisis, safety content in vehicles will continue to increase by either tougher regulations or by consumers demanding the extra safety features. The additional content per vehicle will help the industry to maintain or increase revenue levels even if car production does not recover to levels prior the financial crisis until 3 or 4 years from now.

For instance for the 2010 model, fewer vehicles were able to obtain the coveted 5 star safety ratings, as safety tests have gotten tougher, which will push the Original Equipment Manufacturers (OEMs) to include more safety content in order to achieve the ratings that could allow them to distinguish their product in a highly competitive environment.

In addition to tougher tests here in the U.S., several countries around the world started to regulate the mandatory installation of airbags in the vehicles to be sold in their countries, an example is Brazil, which just passed regulations that will mandate standard airbags in the vehicles for their domestic market. As the trend continues it will definite be a benefit for the industry.

There is some concern that the push for smaller cars, especially in the U.S. market may affect the amount of shipments the auto parts suppliers will make in the future, however from the safety side, the engineers will need to add more design and safety features into the smaller cars, as these offer less crushable space in case of a collision, meaning that there is a need for additional safety features in the vehicle that will able to help protect and help lives, even if the collision is between a medium or intermediate car and the new proposed smaller cars.

Actually, The National Highway Traffic Safety Administration is concern with vehicle incompatibility issues in U.S. highways (SUVS and big cars, versus the new small cars) and will push for more regulations on the safety area for these cars to be allowed to be marketed and produced for the American consumer.

In essence the fundamentals are in place for the vehicle occupant safety industry to grow, even if the car production remains under pressure for the next couple of years. Companies in the industry that can benefit from this growth will be Autoliv, Inc. (NYSE:ALV) a global producer of airbag, seat belts, and other safety electronics based in Stockholm with operations in more than 30 countries and TRW Automotive (NYSE:TRW) the Michigan based struggling auto part supplier that has an important share in the segment.

Autoliv being the pure play in the industry should see the most impact in its earnings potential, as TRW has to manage other non growth or shrinking segments in its product portfolio.  

 
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