4 IN. DI LETTURA
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Oct 8 (Reuters) - Citigroup downgraded Ford Motor Co (F.N) and General Motors Corp (GM.N) to "sell" from "hold," citing deteriorating global credit conditions and "unappealing" valuations, sending the companies' shares down sharply.
The credit crunch is likely to further stress original equipment manufacturers balance sheets and 2010 recoveryexpectations, analyst Itay Michaeli said, adding that better relative value existed in auto supplier stocks that haveunderperformed OEMs and carry less liquidity and/or dilution risk.
The analyst slashed his price targets to $2.50 from $5.50 on Ford, and to $6 from $12 on GM on lower earnings forecasts.
U.S. vehicle sales dropped 26 percent in September, the first monthly sales total below 1 million since 1993, weighed down by a weak economy and tight lending conditions. Sales are down 13 percent through the first nine months of the year.
The drop in demand has been particularly hard for the Detroit Three. GM's sales are down 18 percent so far this year. Ford's sales are off 17 percent and Chrysler sales are off 25 percent.
"For GM, we continue to view liquidity to be adequate through year-end 2008, but the margin of error beyond that has increased, and we continue to view mid-2009 as the deadline for GM to raise substantial external liquidity," Michaeli said.
Ford's liquidity position appears adequate through 2009, but it too is vulnerable to a deeper downturn caused by credit constriction, a decline in its revolver borrowing base or supplier distress, the analyst said.
Shares of Ford fell to a 25-year low of $2.77, while GM shares slipped to $6.42, their lowest since 1952.
The analyst reduced his U.S. lightvehicle sales estimates to 13.8 million units from 14 million for 2008 and to 13.7 million from 14.4 million units for 2009, on a weaker U.S. macro outlook.
North American light vehicle production is expected to be at 12.9 million units in both 2008 and 2009, down from his prior forecast of 13.2 million and 13.6 million units, respectively, the analyst said.
An aging vehicle fleet and a higher off lease volume should help drive demand over the next few years, Michaeli added.
He said BorgWarner Inc (BWA.N) remained his favorite auto stock through this downturnwith a strong balance sheet, appealing value and secular growth prospects.
Michaeli cut his price targets and 2008 earnings estimates on the following autos and auto-parts makers:
Price Target 2008 Estimates Co Name New Old New Old American Axle & Manufacturing $8.50 $11.00 $-2.39 $-2.35 Holdings Inc (AXL.N) Borg Warner Inc (BWA.N) $46 $49 $2.77 $2.83 Ford Motor Co (F.N)
$2.50 $5.50 $-1.82 $-1.82 General Motors Corp (GM.N) $6 $12 $-21.28 $-19.44 Johnson Controls Inc (JCI.N) $28 $32 $2.31 $2.33 Lear Corp (LEA.N) $9 $11 $2.63 $2.68 Magna International Inc MGa.TO $64 $70 $5.30 $5.69 Tenneco Inc (TEN.N) $9 $16
$1.34 $1.50 (Reporting by Amulya Nagaraj and Neha Singh in Bangalore; Editing by Dinesh Nair and Deepak Kannan)