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Canadian auto supplier Magna International Inc. said today that it posted lower net income and sales for the second quarter as its North American customers slashed production.

Magna reported net income of $227 million, down 13 percent from $262 million during the same quarter a year ago. The supplier amassed sales of $6.71 billion, down slightly from $6.73 billion during the same quarter a year ago.

Decreased business in North America continued to offset gains in Europe and other parts of the world, the company said. For the first time, Magna's combined sales and operating income in Europe exceeded those in North America.

Through the first half of 2008, Magna reported net income of $434 million, down 9.6 percent from $480 million for the same period a year ago.

Results for the quarter still beat Wall Street's expectations. Magna shares rose 2.22 percent to close today at $61.11 a share on the New York Stock Exchange.

CEO Donald Walker told analysts in a conference call that the company has crucial contracts with automakers for hot-selling cars like the Ford Fusion.

However, he said too much of the company's business is still in larger pickups and SUVs, whose sales are tanking.

"In the short term, until we can get into some of these other programs, it will be a negative for us," Walker said.

Commodity costs up, OEMs need help

During the quarter, Magna's average content per vehicle increased by 23.4 percent in Europe.

Average content per vehicle grew 2.1 percent in North America, but Magna said that growth is skewed by the effects of foreign currency exchange. The figure would have decreased without the effects of a stronger Canadian dollar against the U.S. dollar, but Magna did not say by how much.

CEO Walker said Magna is feeling pressure brought on by higher costs of resins, steel, aluminum, oil-based products and shipping. The brunt of Magna's exposure to those cost increases on commodities has been in North America.

Magna CFO Vincent J. Galifi told analysts some of Magna's customers are trying to break their contracts with the supplier by asking it to bear more of the costs brought on by commodity price increases.

"We can't eat it all, so we're going to have to have some discussions with them," Galifi said in a conference call.

Another gloomy outlook

Magna also said it has significantly reduced its expectations for 2008 light-vehicle production in North America.

For all of 2008, the supplier now expects volumes of 13.2 million units in North America. When Magna announced first-quarter earnings May 1, it forecast 14.2 million units.

Magna expects its sales for the year to take a hit as a result of its forecasted production drops. It expects total sales for 2008 in the range of $24.3 billion to $25.6 billion. That's down from its earlier expectations for sales of as much as $26.8 billion.

Magna, of Aurora, Ontario, ranks No. 3 on the Automotive News list of the top 100 global suppliers, with original-equipment automotive parts sales of $25.64 billion in 2007.