Magna Exteriors and Interiors (“MEI”), an operating unit of Magna International Inc. ( MGA - Analyst Report ) , has announced the commencement of Active Grille Shutter (“AGS”) production. AGS is a louver system, which obstructs the front-end airflow, thus reducing drag while maintaining optimal engine temperatures. Reduction in drag will also improve vehicle gas mileage.

The louver system operates like household blinds, which automatically open and close depending on the various inputs from the vehicle. While driving at highway speeds, the louvers are closed and the airflow is directed around the vehicle, thus reducing drag and facilitating higher fuel efficiency. Further, while traveling uphill, the louver systems remain open allowing air to flow into the engine compartment, thereby cooling the engine.

The AGS will be deployed in most of the upcoming passenger vehicles. With the updated technology, the company will be able to meet the rising demand of automakers for well-engineered, high-quality system, ensuring rising fuel-economy standards and reduced vehicle emissions standards.

The AGS technology will be first launched in 2013 Dodge Dart and Ram 1500 pickup truck. Later, it will be introduced in four upcoming vehicles. This system can be used in any vehicle segment including pickup trucks and SUVs.

Magna, in the second quarter of 2012, registered a 28.7% growth in its earnings to $1.48 per share from $1.15 in the corresponding quarter last year, surpassing the Zacks Consensus Estimate of $1.28. The year-over-year improvement was attributable to higher profit and a fall in share count, stemming from repurchase and cancellation of common shares during the quarter.

Total revenues went up 5% year over year to $7.7 million in the quarter, exceeding the Zacks Consensus Estimate of $7.5 billion. The increase was driven by improvement in North American and Rest of World (ROW) production sales and higher tooling, engineering and other sales.

Magna International, based in Aurora, Canada, is a leading manufacturer and supplier of automotive components. The company designs, develops and manufactures automotive systems, assemblies, modules and components, besides engineering and assembling complete vehicles, primarily for sale to original equipment manufacturers (OEMs) of cars and light trucks.

Currently, Magna retains a Zacks #2 Rank, which translates into a short-term Buy rating. We have a long-term (more than 6 months) Outperform recommendation on the stock.