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Morgan Stanley drops GM as top pick in U.S. autos

(Reuters) - Morgan Stanley removed General Motors Co as its top pick of U.S. auto stocks on Wednesday, expressing doubts the No. 1 U.S. automaker had the "political will" to overhaul its European operations.

GM shares are likely to "tread water" until the company reports first-quarter results and divulges more details about its restructuring efforts in Europe, Morgan Stanley analyst Adam Jonas said in a research note.

"While we believe GM feels the sense of urgency to make further reductions to excess capacity in Europe, we have our doubts as to whether there is the political will to make significant change possible," Jonas wrote.

Fixing its Opel brand is at the heart of GM's restructuring strategy for Europe. Sustained losses at Opel have become a major point of concern for investors.

GM's contract with its German union IG Metall bars job cuts and plant closures but GM needs to cut costs at Opel against the backdrop of a European debt crisis that has dampened demand.

GM could shift more vehicle production to Europe from Korea, a move that would give GM more leeway to cut costs at Opel, sources said last week.

But Jonas said this shift could prove too "incremental, disruptive and insufficient" to be effective.

"We would view such an arrangement as skirting the issue of excess capacity in the region and a climb-down from what we had believed GM was prepared to do to achieve sustainable profitability for GM Europe," he wrote.

The brokerage kept its "overweight" rating on GM shares and a $45 price target. GM shares have risen more than 20 percent so far in 2012 -- more than any other major auto stock in the world, Jonas wrote.

Morgan Stanley now rates Johnson Controls Inc as its top pick in the U.S. auto sector. The brokerage made GM its top pick in the sector in July.

GM shares were up 0.6 percent at $24.35 on Wednesday afternoon on the New York Stock Exchange. As of Wednesday afternoon, GM stock was 26 percent lower than its IPO price of $33.

(Reporting by Deepa Seetharaman in Detroit, editing by Matthew Lewis)

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