Ahead of the Bell: Analyst cuts auto estimates

An analyst on Thursday cut his earnings-per-share estimates for automakers and parts suppliers due to lower European production forecasts.

Goldman Sachs analyst Patrick Archambault said in a client note that the firm's European autos team is predicting European light vehicle production to be down 4 percent this year and 8 percent in 2009. Its previous forecast was for a 3 percent decline in both years.

Additionally, the firm lowered its European commercial vehicle production forecast for 2009 to a 12 percent drop. An earlier forecast pegged the decline at 3 percent. The company kept its forecast for a 10 percent increase for commercial production this year.

Because of the declines, Archambault changed his earnings-per-share forecast for manufacturers and suppliers to a 3 percent drop this year and 14 percent next year. Goldman Sachs lowered its share price targets by an average of 7 percent, he wrote.

Europe had been seen as an important offset to weakness in North America, Archambault wrote.

"With auto stocks down 20 percent in the last three months, we feel shares are reflecting some measure of caution on Europe. But we see a downside risk to consensus estimates which are still pointing to a 15 percent year-over-year EPS growth in 09," he wrote.

Archambault reiterated a cautious view of the autos sector and wrote that he sees continued downside in the shares because of a worsening consumer spending environment in North America and Europe.

"We see this further exacerbated in coming quarters by lower vehicle affordability driven by significant declines in available credit for auto loans," he wrote.

A proposed $25 billion U.S. government loan package now under consideration by Congress and short-term oil price declines could be mitigating factors, Archambault wrote.