The pressure on big auto makers to squeeze more miles out of a gallon of gas is powering a surge in profit at U.S. auto-parts makers.

August 13, 2013, 6:34 p.m. ET

Mileage Boosters Give Second Wind to Car-Parts Makers

Engine TurboCharger, Start-Stop Battery Makers Gain New Sales, Profit as Auto Industry Seeks Improved Fuel-Economy

JEFF BENNETT

TRAVERSE CITY, Mich.—The pressure on big auto makers to squeeze more miles out of a gallon of gas is powering a surge in profit at U.S. auto-parts makers. Once dismissed by Wall Street, companies including BorgWarner Inc., BWA +2.32%Delphi Automotive PLC, DLPH +2.01% Federal-Mogul Corp. FDML -0.75% and TRW Automotive Holdings Corp. TRW -0.18% are today beating Wall Street’s profit forecasts, hiring workers and making acquisitions. At an industry conference here earlier this month, industry executives said the appetite for fuel-saving technology such as turbochargers, easy-rolling tires and advanced fuel injectors is providing a second wind for companies already benefiting from booming car sales.“You have a mixture of circumstances that are now converging,” said James Verrier, chief executive of turbocharger maker BorgWarner. “There is the push from the legislative mandates. But there is demand from customers, and auto makers are now marketing fuel economy and fuel efficiency as a competitive advantage.”

BorgWarner anticipates the annual number of light vehicles in North America equipped with a turbocharger will jump to three million by 2016 from one million now. The Auburn Hills, Mich., company’s second-quarter profits rose 44% to $174.1 million, and its shares are up more than 35% over the past 12 months.

At Honeywell International Inc., another manufacturer of turbochargers, vice president of the Americas Steve McKinley said his company is “looking for a lot of good people to hire this year, especially those who have experience with turbochargers.”

General Motors Co.‘s GM -0.39% quest to boost the mileage on its midsize Chevrolet Malibu sedan is benefiting battery maker Johnson Controls Inc., JCI +0.07% which last week said it would supply batteries for start-stop technology that GM plans to install on its 2014 Malibus.

The technology bumps up a car’s fuel economy by about 5% in city driving. Stop-start systems turn off an engine when a car is idled or stopped. The Malibu will be the first high-volume, gasoline-engine powered vehicle sold in the U.S. with start-stop standard on its lowest-price model. The system currently costs about $300 as an option.

“We expect start-stop technology to be offered on 40% of the vehicles sold in the U.S. by 2018,” said Johnson Controls vice presidentRay Shemanski. “In Europe, it will be 80%.”

Stop-start systems, turbochargers and other mileage-boosting hardware were a hard sell in the U.S. up until the last decade because U.S. fuel economy targets were little changed, and auto makers focused on selling gas-guzzling trucks and sport-utility vehicles.

The environment changed dramatically during the past five years. A surge in gasoline prices in 2008 drove a shift in consumer purchases toward smaller vehicles. The Obama administration applied a regulatory push with new rules requiring car makers to boost the average fuel efficiency of their U.S. vehicles to 54.5 miles per gallon by 2025. That is more than double the 23.8 mpg average the U.S. fleet achieved in 2012, according to Environmental Protection Agency estimates.

Auto makers “do not have the engineering wherewithal to solve all their own problems,” said Michael Robinet, managing director of automotive consulting at IHSInc. IHS -5.27% “They require the supply base to bring their own solutions to the market.”

Ford Motor Co. F -0.06% purchasing chief Birgit Behrendt said that the top questions her company’s buyers ask suppliers today are how will their technology reduce a vehicle’s weight, and how will it improve fuel efficiency.

“Fuel efficiency is high on the list and it isn’t just with what they have now,” Ms. Behrendt said. “We are working with suppliers far out into the future.”

Take gasoline direct injection. The technology helps to produce more power from less gasoline. Two years ago there were less than five million gasoline direct-injection systems installed in vehicles world-wide.

Delphi Automotive Chief Executive Rodney O’Neal said he expects the market to grow to 35 million direct-injection systems a year in the U.S. by 2020.

Delphi lifted its full-year profit outlook after second-quarter earnings rose to $367 million from $330 million a year earlier.

Companies that sell aluminum and aluminum-manufacturing equipment are big beneficiaries of fuel-economy mandates. Car makers used to be reluctant to use aluminum because it costs more than steel and requires different assembly systems. The 2025 fuel efficiency targets are changing that.

“It is no longer just making it smaller,” said Phil Martens, chief executive of aluminum-maker Novelis Inc. “It is how can we take weight out here by using aluminum, or how can we use a different piece here to reduce friction or heat.” All of the aluminum Novelis now produces in North America for the automotive market is sold out, he said.

Some companies are using cash to make acquisitions. Shiloh Industries Inc.,SHLO +0.72% a Valley City, Ohio, maker of aluminum castings, closed a $54 million deal earlier this week to buy Contech Castings, a provider of high-pressure aluminum die-cast parts. Chief Executive Ramzi Hermiz said he fast-tracked the acquisition, closing the purchase in less than three months.

“Auto makers are committing to the new standards and accepting there will not be a change,” Mr. Hermiz said. “That tells us we need to expand and be ready for demand.”

Auto suppliers are using some of the new revenue to hire more workers. Continental AG CON.XE +0.89% said last week it is adding 40 new jobs over the next five years as it invests more than $35 million in its Henderson, N.C., plant to build lighter-weight electronic parking brakes. The plant has doubled its employment over the past three years and currently has 600 people on its payroll.