Citigroup Global Markets analyst Itay Michaeli has cut his targets again on several major North American auto companies, citing “worsening consumer conditions and depressed used vehicle prices” ripping through the industry. The analyst reduced his targets on American Axle Manufacturing and Holdings Inc. (AXL), Borg Warner Inc. (BWA), Ford Motor Co. (F), General Motors Corp. (GM), Lear Corp.(LEA)  and Magna International Inc. (MGA) among others. He argues that Ford and GM are especially vulnerable to a severe downturn because of their high cash flow volatility.

By contrast, select suppliers will hold up better in the market turbulence either because they have strong balance sheets or because they are developing emissions and fuel economy technology that is being increasingly prized.

Mr. Michaeli said:

Supplier balance sheets appears better suited for difficult times, as the auto supplier base has already undergone significant restructuring over the past few years. Working capital positions, debt maturity schedules and free cash flow positions generally appear stronger than the domestic [auto manufacturers], though are by no means in terrific shape. As such, we favor selective bottom fishing in suppliers.

Mr. Michaeli cut Magna’s target price to $79 from $90 to reflect lower trading multiples across the supplier group and reduced earnings estimates. He cut the company’s 2008 earnings per share estimate to $6.16 from $6.23 and 2009 estimate to $7.26 from $7.76.

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