INTERVIEW-Johnson Controls cites Western Europe weakness

* 'Significant softening' in W. Europe in last 45 days

* Downturn 'feels worse' than previous ones

* Indicator of orders in buildings segment is holding up

NEW YORK, Oct 14 - Auto interiors maker Johnson Controls Inc has seen a "significant softening" in Western European auto sector demand in the past 45 days, forcing the company to change its expectations for the current fiscal year, its two top executives said on Tuesday.

Until about a month ago, the company expected demand from Western European customers to hold up and expected to increase profits in fiscal 2009, which began at the start of October, Chief Executive Stephen Roell told Reuters in an interview.

"Europe has softened in the last 45 days," Roell said. "Prior to the last 45 days, we saw softness in southern Europe and we saw weakness beginning in the UK. I would characterize the last 45 days as a significant softening."

The company, which also makes batteries and technology to improve the efficiency of buildings, said earlier on Tuesday it expected fiscal 2009 profit to decline by 10 percent to 16 percent from fiscal 2008, reflecting double-digit declines in auto production in North America and Western Europe. It said it expects sales to decline by 3 percent to about $37 billion. ID:nN14503263.

Its shares lost almost 7 percent to $22.40.

Western European economies are feeling the same "liquidity crunch" that is hurting U.S. demand, Roell said, and Eastern Europe also was likely to slow, though "not near to the same extent" as Western Europe.

In the United States, it is too soon to tell whether a bona fide recession will result, though the auto business is already in a recession, he said.

"Consumers are looking at their 401(k), and they are not going to rush out and make a big purchase," Roell said. "We have to get through that mentality."

U.S. auto sales have fallen sharply this year amid tighter consumer credit, high gasoline prices and an abrupt shift in buyers' preference toward smaller vehicles. U.S. auto production next year could reach its lowest level since 1992.

"The magnitude of the cutback in global production feels worse," than previous periods of weakness, he said. "If you'd asked me this 30 days ago, I wouldn't have answered that way. I would have said there were concerns, and we expected Europe to hold up and we'd be able to continue to grow this year."

Roell added the company is now much less dependent on the auto industry and is less centered on the United States. A rapid increase in the value of the U.S. dollar also forced the company to rethink its 2009 forecasts. he said.

'HOLDING UP'

The current tight credit environment could hurt demand in its building efficiency business, Johnson Controls said Tuesday, but there was no immediate indication of falling demand.

"Right now we're seeing that holding up," Chief Financial Officer Bruce McDonald said about its pipeline, a leading indicator of orders, adding he has not yet seen October data.

McDonald also said the company had little debt coming due in coming months, and has "no problems at all accessing capital."

Johnson Controls had $50 million in commercial paper outstanding as of last month, and has about $350 million in debt maturing over the next two years.

"We went into this downturn underleveraged, and I think we're probably going to be cautious in terms of making a larger acquisition versus last year," McDonald said. Sellers are more interested in selling underperforming assets than the good stuff, he added.

"Seller aspirations have not come down yet," McDonald said. "They will, it's just going to take some time."

Future acquisitions will likely be aimed at growing Johnson Controls' building efficiency business, rather than the auto interiors business, CEO Roell said, and the company can tap credit from a Japanese lender to fund a deal.

Separately, Roell said he thought shareholders were better served by growth investments than a stock buyback, despite the shares' almost 50-percent drop.

"I'd rather use our cash to find new growth legs," he said.

Longer-term, he predicted the company will "skew" toward the building efficiency business, and will generate as much as three-quarters of its sales outside the United States. But its goal of becoming a $50 billion company may be delayed.

"We didn't anticipate this kind of a setback," Roell said. "We're going to have to live through this drop, and when it comes back we'll be able to move quickly toward that goal."