Citi Downgrades its Global Auto Forecast

June 19, 2008 3:11 PM EDT

Citi analyst says, "May was the first 'clean' month (ex-Easter skew) for auto sales and painted a glum picture of global demand. Mature markets slid further and early indicators for June imply even sharper declines ahead, particularly in the US. Even emerging markets slowed their stellar pace in May, leaving global sales down almost 2% in the month, although up 3% YTD...It is now clear that turmoil in the financial markets will impact vehicle demand in developed markets, and rising petrol prices and changes in taxation to penalise fuel-thirsty cars exacerbate these woes. We therefore now only expect moderate global growth of 1.3% in FY08 (was 1.8%) and have adjusted down our 09 and 10 forecasts to 3.4% and 3.7%, respectively (was 4.7% and 5.1%)....With all data pointing to an even more significant slowdown in the US market in 08, leading both domestic and foreign manufacturers to trim excess capacity particularly for light trucks & SUVs, we now estimate an even sharper decline in 2Q08 production of -13% (previously -9%) and full year production volume down 8% (previously -5.5%)."

Citi Global Picks — Small car Fiat (BUY) is our top pick in Europe, also cash-rich BUY rated Daimler (NYSE: DAI). BUY rated Borg Warner (NYSE: BWA) is our US favourite, while Daihatsu (BUY) is preferred in Japan. On the sell side, we highlight currency-challenged Porsche (SELL) and VW (SELL) where we think the market underestimates the negative aftermath for shares once Porsche achieves its expected 51% voting majority.

Other stock to note - General Motors (NYSE: GM), Ford (NYSE: F), Lear (NYSE: LEA), Johnson Controls Inc. (NYSE: JCI), American Axle (NYSE: AXL), Magna Int'l (NYSE: MGA), TRW (NYSE: TRW) and Tomkins plc (NYSE: TKS).

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