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SAN FRANCISCO (CBS.MW) -- Lehman Bros. upgraded the world's two biggest automakers Wednesday, giving shares of market leader General Motors and No. 2 rival Ford Motor Co. a lift in early trading.

Analyst Darren Kimball raised the rating on both Ford (F) and GM (GM) to "equal weight" from "under weight."

The investment bank said that industry sales are running strong and don't look like they'll ease off anytime soon if the U.S. economy gets healthier. That, according to Lehman, should help the pair preserve their dividends -- for now, at least.

"It will not be until much later this year or early 2004 that a truer (read: more pessimistic) picture will emerge of what the interaction between a stronger economy, a saturated car-buying consumer, and higher interest rates will yield," Kimball wrote in a note to clients.

As a counterbalance, more efficient operations and international sales should then help offset any slip in GM's mortgage-driven finance businesses or the overall auto-buying climate, he said.

Looking at the most recent quarter, Kimball said the earnings at Ford and GM were stronger than expected. Though the companies' automotive manufacturing operations contribute far less to the bottom line than their respective finance units, cost cutting in manufacturing is paying off, Kimball said.

He expects GM to earn $4.80 in 2003, 5 cents above the consensus view and $1.20 better than his earlier estimate. The price target on the stock is $33, up $5 from his earlier target.

Ford's price target is lifted $1 to $10 a share. He now expects Dearborn, Mich.-based Ford to earn 85 cents a share, up 15 cents from his earlier target and the highest estimate among the Wall Street community, he noted.

Ford's shares rose lately by 11 cents to $10.63, while Detroit's GM gained 22 cents to $36.42.

Separately, a Credit Suisse First Boston analyst said dealers' industry inventories appear to be above headed toward a level that's historically high for this time of year despite a big decline in July.

"We estimate that despite healthy volume and production cuts, Big Three inventories may still be 100,000 units above normal (unadjusted) by the end of the third quarter," wrote analyst Chris Ceraso in a Wednesday note.

That could mean production cuts in the fourth quarter, which would inevitably have an impact on financial results. CSFB is advising GM on the pending sale of its GM Hughes Electronics (GMH) stake.{95893AE2-1877-43A9-9338-9EC9104D023B}&currticker=gm&symbols=gm&nx=&bx=
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