Issue: Jun 2009


Industry Outlook for Global Automotive Manufacturers, published by Moody's



by Steve Barclay

The Industry Outlook for Global Automotive Manufacturers, published by Moody's - the outlook for the sector is negative. 

The report covers sections including key trends & rating implications and key trends by markets/regions (split into North America, Western Europe, Japan, Emerging Markets - BRIC) and a section on auto captive finance subsidiaries and European auto banks.

Extracts:

Moody’s forecasts global auto sales volumes in 2009 to be 13% lower than the already-low level posted in 2008 in its central scenario. Limited prospects for a meaningful recovery in 2010. 

Global automotive sales declined by 9% in 2008 from 2007. Moody’s auto sector analysts expect 2009 volume shifts ranging from flat in China to a 24% drop in the US. We expect a sequential improvement in the slump in W.Europe after a decline of 17% in Q1 2009, but are forecasting a drop of nearly 11% for full year 2009.
Moody's believes a positive free cash flow would be a rare exception in the current year. Therefore, access to liquidity outside the operating business will be critical for manufacturers' staying power 

Production cuts are likely to continue well into 2009 but might be insufficient to trim inventories and bring next year’s volumes in line with demand, making deeper restructuring necessary. Whether this means companies will be willing to take out capacity and engage in needed consolidation remains to be seen.
Tight credit markets continue to limit consumer and in some cases dealer access to financing; captive financing arms of OEMs also face asset quality and funding challenges. The ability of the industry to recover from its present slump depends in no small degree on how new car sales can be financed, making the position of automakers’ captive finance arms critical. 

Incentive schemes to stimulate purchase of new cars might pull forward demand, but ultimately result in delayed recovery in certain markets.
Further rating actions are likely, depending upon the magnitude and length of the downturn. Ratings will remain under pressure, driven by both weakening profitability and lower cash generation with in the OEM's industrial business, as well as rising losses on residual values and credit defaults from their financing activities
The result of Chrysler’s Chapter 11 filing and GM’s restructuring could have a substantial effect on the current structure and competitive landscape to the extent it would provide a stimulus for a long-awaited restructuring. Moody’s believes that Chrysler’s bankruptcy proceedings could be more complicated and protracted than the US government anticipates.

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