UPDATE 1-S&P cuts US auto suppliers' credit ratings

(Adds action on American Axle and ArvinMeritor)

NEW YORK, Jan 12 (Reuters) - Standard & Poor's on Monday cut its ratings on auto suppliers Visteon Corp VC.N, American Axle Manufacturing & Holdings Inc (AXL.N) and ArvinMeritor Inc (ARM.N) deeper into junk territory, citing declining auto demand and production.

The falling demand is likely to cut into all of the companies' cash balances in 2009, S&P said in a statement.

"We expect U.S. light-vehicle sales to decline about 24 percent in 2009 to 10 million units, and that Visteon could use more than $400 million in cash during 2009 under this scenario," the rating agency said.

S&P cut Visteon's corporate credit rating two notches to "CCC," eight steps below investment grade, from "B-minus."

S&P also cut American Axle two notches to "CCC-plus," seven steps below investment grade, from "B." ArvinMeritor was cut one notch to "B," five steps below investment grade, from "B-plus."

American Axle's revenues are heavily dependent on General Motors Corp's (GM.N) sales of sports utility vehicles and pickup trucks, both of which have weakened substantially, S&P said.

It added that "despite government assistance, GM's condition remains precarious."

The outlook for Visteon and American Axle is negative, indicating an additional downgrade may be likely.

ArvinMeritor also remains on review for further downgrade, after the company on Thursday halted plans to sell its light-vehicle system business.

"This unit has been a user of cash," S&P said.

NEGATIVE OUTLOOK

Visteon's "liquidity appears adequate for at least the early months of 2009," S&P said. The company may be downgraded again in the next year, however, if falling auto production or restructuring delays cause Visteon's global cash balances to fall below $700 million, from $1.1 billion at Sept. 30, 2008.

The company's ratings will also be cut again if it undergoes a debt restructuring, S&P said.

American Axle's liquidity is constrained by the expectation of negative free cash flow in 2009, the agency said.

The company could be downgraded again if it is unable to maintain access to its bank facility or if its earnings before interest, taxes, depreciation and amortization fall more than 10 percent below S&P's projection of $193 million for 2009, the rating agency said.