Tenneco sees auto output drop

By David Bailey

DETROIT (Reuters) - Tenneco Inc (TEN.N: Quote, Profile, Research, Stock Buzz) Chief Executive Gregg Sherrill said on Monday the auto parts maker expects North American production of light vehicles to decline in 2008 due to housing market weakness.

The build rate could be in the range of 15.1 million to 15.2 million vehicles, down from an expected 15.3 million rate in 2007, Sherrill said at the Reuters Autos Summit in Detroit. A recovery depends on a rebound in consumer confidence, he said.

"I think we are still kind of down the middle of the road," Sherrill said of the Tenneco forecast for production versus other estimates. "I would probably see more risks to that than upside to that," he added.

Sherrill said a rebound in housing would signal a likely recovery in light vehicle production toward the historically high levels of recent years.

"In typical fashion we thought that party would continue forever. It obviously didn't, and it is really with us now," Sherrill said of the housing sector's problems. "If that takes one to two years, possibly on the long side a little more than that -- that is what I would watch as the leading indicator now."

Sherrill said the difficulty in selling homes in some stricken markets, such as Detroit, has made it difficult to draw employees to other cities. Tenneco is based in Lake Forest, Illinois, a suburb of Chicago.

Tenneco, which produces emissions and ride control parts, generates 49 percent of revenue in Europe, 42 percent in the United States and 9 percent in Asia. It eventually aims for revenue of about one-third from each.

Tenneco expects revenue of about $6 billion in 2007 and revenue growth of about $300 million, excluding acquisitions, in 2008. It plans to update the 2008 revenue projection and give an initial 2009 forecast in January.

Tenneco expects to be cash flow positive in the fourth quarter after a negative third quarter due to a supply chain hiccup in South Africa, where it was forced to carry excess inventory that will work itself out by the end of the year, Sherrill said.

The parts maker has targeted a reduction in its net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio to 2.0 within five years to reach an investment grade credit rating, he said.

It expects to cut that ratio to 2.7 by the end of 2007 from 2.9 at the end of 2006.

(Editing by Gerald E. McCormick/Jeffrey Benkoe)