BAY STREET-Big Canadian parts makers may grow even bigger

* Magna, Linamar and Martinrea seen growing market share

* Companies making strategic buys, taking over contracts

* Automakers plan to cull weaker firms from supply lists (In U.S. dollars unless noted)

By John McCrank

TORONTO, July 5 (Reuters) - Canada's top auto parts makers are likely to take more market share and new sales from their smaller rivals as the sector consolidates in the wake of the upheaval that drove General Motors Corp GMGMQ.PK and Chrysler into bankruptcy.

The size and scale of the big listed players, and the growing desire of automakers to assure stable supplies, mean their shares may still offer good value even after their recent rally, analysts say.

Magna International (MGa.TO), Martinrea (MRE.TO) and Linamar Corp (LNR.TO) were all hit hard as the crisis in the global auto industry deepened earlier this year, with their share prices hitting 2009 lows in March.

But the big Canadian companies have escaped the fate of some of their U.S. counterparts, such as Lear Corp (LEA.N) and Visteon Corp VSTN.PK, which were forced to file for bankruptcy.

"The Canadian companies have had good balance sheets and that's enabled them to do well," said David Tyerman, an analyst at Genuity Capital Markets.

Since March, Magna's stock has nearly doubled in price, Martinrea's has more than tripled, and Linamar's is more than five times higher. Analysts say there's still room for gains.

That's because the small "mom and pop shops" that represent the majority of Canadian suppliers have borne the brunt of the pain while the bigger, listed companies have been able to focus on increasing their market share.

"You have about 300 or 400 suppliers and I think half of them are going to go either bust or be acquired by somebody, and we're seeing this happening," said Youssef Abboud, an analyst at Clarus Securities.

As those companies fail, the healthy suppliers are sitting in the wings, waiting to snap up contracts and assets at fire-sale prices.

BANKRUPTCIES DRIVING DEALS

The big Canadian parts companies have been busy making strategic acquisitions and that's not likely to change any time soon.

Magna, which is leading a consortium to buy GM's Opel unit, was given the go-ahead in May to scoop up the Czech-based operations of Cadence Innovation LLC, a bankrupt U.S.-based rival. It also bought a plant in Alabama from a Japanese supplier.

Martinrea, which recently closed a C$55.8 million ($48.1 million) private placement to help shore up its balance sheet, bought C$3 million in assets in April from SKD Co, a bankrupt Canadian parts supplier. It previously bought an SKD plant in Mexico and another in Michigan for $10 million. Revenue from those plants was about $100 million last year.

Linamar, at the same time, was making arrangements with Ford Motor Co (F.N) to buy one of its plants in Mexico.

CONSOLIDATION ACCELERATING

The bankruptcies and temporary plant shutdowns at General Motors and Chrysler have speeded up consolidation in the industry. Production cuts at those two big customers meant lower receivables and the liquidity they bring with them.

"The smaller companies are especially vulnerable to demand-side shocks from GM and Chrysler," said Sabrina Browarski, an economist at the Conference Board of Canada.

"The larger firms are better able to absorb shocks because they have more diversified contracts."

Browarski has forecast employment in the Canadian parts sector to fall 37 percent in 2009 to about 62,200.

As companies go out of business, voids open up that the bigger parts companies have rushed to fill.

"At this point in time, takeover contracts seem to be more plentiful, which isn't surprising, given the distress in the industry and the low volumes and so on," said Genuity's Tyerman.

"Magna mentioned it had won over $200 million of new business, Linamar won C$100 million of takeover work in the first quarter... and Martinrea has been winning takeover and other work too," he said.

Due to the turbulence in the industry and weakness in the supply chain, the Detroit-based automakers have said they plan to cut the number of suppliers they use.

"They want to streamline the supply chain to have less and less but stronger suppliers to deal with," said Kam Hon, an analyst at ratings agency DBRS.

"I mean, one little cog in the whole chain can totally shut down the operation, as Chrysler unfortunately found out."

Chrysler was forced to close some of its plants temporarily in April after a dispute with Transcast Precision Inc, a small Ontario-based company, led to a supply shortage.

"So, consolidation is more or less ongoing going forward for the auto parts sector," said Hon.

($1=$1.16 Canadian) (Reporting by John McCrank; Editing by Frank McGurty)