World auto outlook weakens; U.S. companies seek help

TOKYO/FRANKFURT (Reuters) - Slowing economies around the globe and the widespread credit crisis caused the largest auto industry companies to slash full-year profit targets, warn of job losses and push for speedy government handouts.

As the strong yen forced Japanese carmakers Mazda <7261.T> and Mitsubishi <7211.T> to slash full-year targets on Thursday, struggling U.S. automakers were looking to obtain billions from the U.S. government to help them survive.

The only global company bucking the trend was German rival Volkswagen , which stuck to its previous guidance despite the global financial crisis.

In the United States, governors from six states implored the federal government to act quickly and provide tens of billions of dollars to bail out the industry, which saw sales fall to 15-year lows in September.

"While all sectors of the economy are experiencing difficult times, the automotive industry is particularly challenged," the governors said in a letter to the Federal Reserve and U.S. Treasury. "As a result, the financial well-being of other major industries and millions of American citizens are at risk. Immediate action is needed to address this crisis.

Auto executives also voiced their concerns about the state of the global industry.

"I see the current situation as an historic financial crisis," Mitsubishi Motors President Osamu Masuko said at a news conference in Tokyo.

Mazda surprised with a sharp cut in its earnings forecast after quarterly operating profit fell by a fifth. Mitsubishi also lowered expectations despite a 21 percent profit gain helped by lower costs.

Volkswagen, the No. 3 carmaker after Toyota <7203.T> and General Motors Co , affirmed that 2008 operating profit would see growth with just one quarter left to go, after currency hedging gains offset shrinking gross margins to give a hefty boost to earnings in the three months to September 30.

VW's automotive net liquidity at the end of September dropped 15 percent as higher investments forced the company to burn through its cash in the third quarter, a 4.36 billion-euro negative swing in net cash flow versus the year earlier.

Volkswagen just began the roll-out of its most important model, the VW Golf, which Chief Executive Martin Winterkorn hopes will lift group sales in 2009 as well, but he has already warned next year would be "critical."

Chief Executive Karl-Thomas Neumann of German auto parts supplier Continental said he had witnessed a steep slowdown in all markets in the past quarter: "This trend will probably become even stronger, continuing far into 2009."

A number of leading auto parts suppliers posted steep losses while U.S. dealership groups reported sharp declines in earnings.

From airbag and safety equipment manufacturer TRW Automotive Holdings Corp to seating and electronics maker Lear Corp to dealership group Penske Automotive Group Inc ,

all expressed concerns about future growth.

JAPAN RALLY

Amid broader strength, shares in European and Japanese auto stocks rallied as investors cheered a Federal Reserve interest rate cut and likely further easing in monetary policy.

Mazda, of which Ford Motor Co owns a third, had been expected to overshoot its projections until it revealed on Thursday results described as "awful" by Credit Suisse and shaved 75,000 vehicles off of its sales target.

CEO Hisakazu Imaki declined to confirm or deny reports Ford is looking to unload the bulk of its stake in the Japanese carmaker to raise cash, saying only that he expected no change in the long-time partners' relationship.

"Mazda and Ford are so close that it's hard to tell where one starts and the other ends," Imaki said.

Rival Mitsubishi complained of falling sales in mature U.S. and European markets as it lowered expectations for its global volumes by 6 percent and said it was bracing itself for narrowing growth in Russia.

Honda <7267.T> has predicted bigger falls in profit this year amid rapid appreciation in the yen versus both the dollar and euro, while Nissan <7201.T> reports on Friday and Toyota on November 6.

NO ONE SPARED

Truckmaker MAN Commercial Vehicles, the core business of industrial conglomerate MAN , lowered its margin outlook as new bookings plummeted but it still expected a healthy operating return on sales of just below 11 percent.

"While we expected a slowdown in demand, it proved to be faster and sharper than we had forecast at the beginning of the year," said Hakan Samuelsson, chief executive of parent MAN.

Due to the "considerable uncertainty" among truck customers, Samuelsson said he would significantly reduce MAN's nearly 3,390 temporary staff which represented more than 6 percent of its workforce.

Even a potential merger between GM and Chrysler could result in the closing of at least four factories, according to a study by Grant Thornton.

But a GM-Chrysler merger is still the best option under the circumstances, said Kimberly Rodriguez, principal of Grant Thornton's automotive practice.

On Wednesday, Toyota's truck subsidiary Hino Motors Ltd <7205.T> reduced its operating profit forecast by two-thirds, blaming a drop in production of vehicles and parts for Toyota in North America.

Germany's Continental stuck to its recently reduced guidance for a 2008 adjusted EBIT margin of around 8.5 percent amid a worsening sales outlook largely priced into the stock, and announced a fresh round of cost cuts.

"In the Automotive Group we will reduce the number of temporary workers, greatly lengthen the plant holiday shutdown period at the end of the year by using the existing work time accounts," Neumann said in a statement.

"Furthermore, we are putting investments that are not urgent on hold," he said.

Toyota's rare setbacks in the United States, centering on shrinking demand for large, gas-guzzling vehicles like its Tundra full-size pickup, also hit its top supplier, Denso Corp <6902.T>, which lowered its profit forecasts for the year to next March 31.

(Writing by Patrick Fitzgibbons, editing by Matthew Lewis)

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