TRW Automotive (NYSE:TRW) is about to release earnings. Ponder this Bear Case Scenario:
Auto parts has a schizophrenic dynamic of increasing commodity costs and annual price reductions. Bad economics constantly nipping at the heels of success.
TRW operates in a highly cyclical, capital-intensive automotive parts supply industry. when the cycle is good its very good and vice versa. The nature of the demand cycle dramatically increases during economically challenging periods. Can you get fat enough in good times to survive the bad. Classic winter summer cycle which takes its toll on the weak.
Technological innovation is relentless and cut throat. R&D requires large capital outlays. If you don’t do it right your competitors will destroy you quickly.
George Gutowski writes from a caveat emptor perspective.