Merrill Lowers GM, Ford to 'Neutral'

Analyst John Casesa is concerned about fundamentals for car manufacturers and their parts makers amid the weak economy

Merrill Lynch downgraded General Motors (GM ) and Ford (F ), as well as auto parts makers Dana Corp. (DCN ) and Delphi (DPH ), to neutral from buy.

Analyst John Casesa says the downgrades reflect worsening auto industry fundamentals. More than any other factor, he says he believes continuing deterioration in new and used car prices is increasingly strong headwind that is raising the risk of further margin compression for these companies, which have both high operating leverage and constrained financial flexibility. In order for industry pricing to improve, Casesa sees a need for rapid acceleration in economic growth and/or sharp capacity reduction, both of which he says appear unlikely.

Before it's here, it's on the Bloomberg Terminal.