ITW sees strong sales to non-U.S. automakers

By Jui Chakravorty

NEW YORK (Reuters) - Diversified manufacturer Illinois Tool Works Inc. (ITW.N: Quote, Profile, Research, Stock Buzz) expects sales to non-U.S. automakers in North America to grow about 20 percent this year, its chief executive said on Tuesday.

"We've been making very good progress with the new domestics, largely the Asians," Chief Executive David Speer said, speaking at the Reuters Manufacturing Summit in New York.

"The growth rate was 20 percent last year ... and will be close to 20 percent again this year," Speer said, referring to foreign automakers such as Toyota Motor Corp. (7203.T: Quote, Profile, Research, Stock Buzz), Honda Motor Co. Ltd. (7267.T: Quote, Profile, Research, Stock Buzz) and Nissan Motor Co. Ltd. (7201.T: Quote, Profile, Research, Stock Buzz).

Sales to the auto industry account for 12 percent of revenue at ITW, which makes fasteners, plastic parts, chemical fluids, adhesives, coating products and auto replacement parts.

Speer said he expects revenue from the North American auto industry to remain stable at about 7 percent in 2007, even as domestic automakers slash production to cope with billions of dollars in losses, declining sales and sliding market share.

Detroit's Big Three -- General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), DaimlerChrysler AG's DCXGn.DE Chrysler Group and Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) -- account for about 80 percent of ITW's North American auto revenue.

"We, like many in the last 18 months, have dealt with a pretty drastic shift from trucks and SUVs in Detroit ... and those vehicles have more content," Speer said.

High gas prices have caused consumers to move away from gas-guzzling vehicles, which are the most profitable for U.S. automakers. Asian automakers, unlike their U.S. rivals, have not relied heavily on SUVs and trucks for sales.

Speer said ITW could grow sales at domestic auto manufacturers once he has a better idea of their production plans.

"When things are normalized, when it's clear what the vehicle builds are, we would expect that we would pick up some penetration ... that would lead overall to a slightly positive growth rate in North American auto," Speer said.

GM, expected to be challenged by Japanese rival Toyota for the top spot in global sales this year, on Tuesday said it expects U.S. sales to have fallen 6 to 7 percent in February.

Ford said it expects sales fell 10 percent to 15 percent this month. Both automakers have cut production forecasts to align capacity with lower demand and reduced fleet sales to rental companies.

U.S. automakers are growing overseas, however. Speer said ITW is expanding its auto parts unit in China and India, two rapidly growing auto markets. Speer also said he wants to grow sales in the U.S. market despite production cuts. "If they reduce vehicles, we will make more content to put in fewer vehicles."

"We make good business in our auto business," Speer said of the unit, which enjoys operating margins in the high-teens. "It's above the company average in operating income and well above in terms of return on investment."