* Magna Posts 2Q Loss,45% Sales Drop; Hurt By Vehicle Output Decline

Hurt by major drops in vehicle production, auto-parts giant Magna International Inc. (MGA) swung to a second-quarter loss as sales dropped 45%.

Magna lost $205 million or $1.83 a share in its latest quarter, compared with a profit of $227 million or $1.98 a share a year earlier. Unususal items reduced earnings by 54 cents a share in the latest quarter and 6 cents in the year-earlier quarter.

It posted an operating loss of $237 million versus an operating profit of $319 million.

Sales plummeted to $3.71 billion from $6.71 billion.

Analysts had been expecting a loss of $1.01 a share on sales of $4.10 billion.

During the quarter, Magna's North American vehicle production dropped 49% to 1.8 million units and European vehicle production fell 28% to 3.1 million units%. Its North American and European average dollar content per vehicle fell 10% and 7%, respectively, from a year earlier.

Magna said continued weak automotive sales and higher dealer inventories for many vehicles were largely responsible for the decline in vehicle production.

In the first quarter, Magna suspended its quarterly dividend in a bid to conserve cash, and warned that its results would be hurt in the short term by planned shutdowns at its major customers.

Auto-parts suppliers are struggling from the unprecedented downturn in the U.S. auto industry. Analysts are predicting a very tough second quarter for auto-parts makers, given their high exposure to the Detroit three, especially General Motors Corp. (GM) and Chrysler LLC (C.XX), which both filed for bankruptcy protection in the U.S. in the second quarter. GM is Magna's largest customer and Chrysler is its fourth largest.

Analysts, however, are predicting that as the economic recovery gains momentum, it should help sustain a recovery in light vehicle production over the next three to four years in both North America and Western Europe. UBS is predicting Magna's earnings will recover to $5.28 in 2012 and $6.36 in 2013, but cautions that the path to recovery is not without some risk.

Magna said there appear to be signs of improvement in certain key automotive markets, noting July's U.S. auto sales rate was the highest so far in 2009.

As reported, Magna and RHJ International SA (RHJI.BT) submitted final offers for GM's Adam Opel GmbH unit on July 20 and the two companies have been in talks with GM this week. Politicians and Opel's union have been clear in their preference for Magna, though reports Thursday said the U.S. government has reservations about a sale to Magna if Russian investors would gain acess to GM patents, particulary military ones. Magna is bidding for Opel with Russian bank Sberbank (SBER.RS). link....