ArvinMeritor Firming Up

On June 24, auto parts maker ArvinMeritor (ARM - Analyst Report) announced that it will sell its entire ownership interest in two joint ventures under its Light Vehicle Chassis Systems business.

The first joint venture -- Meritor Suspension Systems Company (MSSC) -- is based in North America and involves the manufacture and sale of automotive coil springs, torsion bars and stabilizers. The second one -- Gabriel de Venezuela -- manufactures shock absorbers, struts, exhaust systems and suspension modules for countries such as Venezuela, Colombia, Chile, Bolivia, Peru, and Ecuador.

ArvinMeritor's sale of both the 57% in MSSC and the 51% stake in Gabriel de Venezuela will lead to a divestiture of 45% of the company's Chassis Systems business.

ArvinMeritor's light vehicle market is exposed to the cyclical aberrations of the auto industry. Weak demand in the light vehicle segment (33% of sales) in both North America and Europe has hurt the company's margins. This forced ArvinMeritor to attempt a spin-off of the Light Vehicle Systems (LVS) business in 2008.

However, the company replaced the spin-off approach by a "timely and orderly exit" during the second quarter of the company's fiscal 2009 due to deteriorating market conditions. The company decided to divest all the businesses under LVS, except Wheels (based in Brazil and Mexico), at appropriate values.

We expect ArvinMeritor's efforts to be worthwhile once the global automotive market rebounds. We continue to recommend ARM as Hold with a target price of $4.00 per share.