TORONTO (Reuters) - Auto parts maker Magna International Inc (>> Magna International Inc.) has room to grow, but it won't bid for PSA Peugeot Citroen's (>> PEUGEOT) stake in auto parts maker Faurecia (>> FAURECIA), the Canadian company's chief executive said in an interview on Thursday.

CEO Don Walker also said that strong U.S. vehicle demand was pushing plants to capacity and could leave automakers scrambling to increase production.

The fortunes of Magna, which counts Detroit's Big Three among its major customers, have risen as the U.S. auto sector recovers after the 2009 bankruptcies of Fiat SpA's Chrysler (>> Fiat SpA) and General Motors Co (>> General Motors Company).

Magna shares have risen to record highs this year, up some 65 percent in New York. Magna plans to release new 2014 forecasts at the Detroit Auto Show in January.

Speaking at the company's Investor Day, Magna executives said the company had the balance sheet and cash flow to support growth.

But it would not make an acquisition simply to use the cash, and Walker dismissed a Bloomberg report that Magna could be interested in Peugeot's 57 percent stake in Faurecia.

"If you look at our history, we would consider looking at business units that we can buy and run and control and own," he said.

"They're talking about selling some shares in a public company. I don't know where the rumor came from, but it's not something we'd be looking at doing."

Reuters, quoting sources with knowledge of the situation, reported last week that Peugeot may sell its Faurecia stake as part of talks with its Chinese partner, Dongfeng Motor Group Co Ltd (>> Dongfeng Motor Group Co. Ltd).

'A GOOD PROBLEM'

Walker said Magna has kept up with demand as the U.S. auto sector recovers and has several plants operating around the clock. But at current volumes, capacity is tight.

"I suspect if the industry continues to grow, it will be a scramble for some of the automakers ... It's a good problem to have short-term - to be over capacity," said Walker. Companies would need to consider adding capital, workers, or build new tooling if the situation continues.

U.S. auto sales are expected top 15.5 million units this year, far above the 10.4 million sold in 2009, the industry's low point.

Sales data show pickup trucks and SUVs make up the bulk of profit for automakers, despite a U.S. government push for greener options. Walker said hybrid electric vehicles will remain a growing market but will not replace the internal combustion engine in the short term.

"I think the payback on electric vehicles is still very difficult. And unless there's heavy government incentive, I don't think we'll see large volumes of pure-electric vehicles for quite some time," said Walker, adding that the "niche market" will continue to grow at a very slow pace over the next 10 to 15 years.

Electric car maker Tesla Motors Inc (>> Tesla Motors Inc) is one of Magna's customers.

(Reporting by Solarina Ho; Editing by Janet Guttsman, Jeffrey Hodgson and Steve Orlofsky)

By Solarina Ho