Issue: Oct 2009


Moody's revises Global Automotive Manufacturers' Industry Outlook to stable



by Moodys Investors Service

Moody's Investors Service today changed its Industry Sector Outlook for the Global Automotive Manufacturers sector to stable from negative. The outlook expresses Moody's expectations for the fundamental credit conditions in the industry for the next 12 to 18 months.

This change in outlook reflects Moody's view that the drastic reduction in global light vehicle production experienced over the last 12 months has begun to moderate and that very modest growth trends may take hold. This should contribute to a firming of business fundamentals for the global automotive manufacturers. A stable outlook indicates that Moody's does not expect business conditions for the automotive manufacturers to materially improve or worsen.

Moody's notes that this industry outlook change does not affect individual manufacturers' rating outlooks, which will continue to reflect their fundamentals and financial profiles.

The rating agency anticipates 2% growth in global light vehicle unit sales in 2010 based on stabilizing global demand and a favorable comparison to weak sales in 2009. Approximately 40.4 million light vehicles were sold worldwide in the first eight months of 2009, down 11.3% from the same period the year before. For the full year 2009, Moody's base scenario forecasts a decline of 8% from 2008 global sales of about 64.6 million vehicles.

"However, there is a material difference in regional market developments," said Moody's Senior Vice President Falk Frey. "Demand in Western Europe will be weaker next year, driven by the pull-forward of demand resulting from scrapping bonuses in the key European markets that supported sales volumes in the current year. We expect new registrations of light vehicles to be down in 2010 as these incentives either end or are prolonged on less favorable terms. This particularly could affect Germany, where passenger car registrations were up 27% year to date through August.

"Nonetheless, all rated manufacturers will benefit from initiatives they have implemented in the current year to adapt inventory levels and cost structures to the lower levels of demand. In the absence of further restructuring expenses, Moody's anticipates an improving trend in operating performance, although from exceptionally weak or negative levels in the current year," Frey added.

In the North American market, calendar year 2010 vehicle sales are expected to rebound slightly from the very depressed levels seen in 2009, but will still remain well below previous peak levels. "We would expect to see vehicle sales climb to about 11.5 million units in the U.S.," said Bruce Clark, Moody's U.S. auto analyst. Even with the significant restructurings implemented by automakers, this level of sales will still be insufficient to restore profitability. But the significant downside pressures that have plagued the U.S. auto industry over the last several years appear to have abated.

Despite the signs of stabilization, multiple constraints exist that will likely hinder the return of more meaningful near-term growth and the light-vehicle demand levels experienced in 2007 and 2008, Moody's said. Also, some downside risks remain given the uncertainty of economic recovery as well as rising unemployment rates in major car markets.

Thus, while Moody's believes fundamentals for carmakers are firming -- especially those with strong presence outside Western Europe -- the agency does not expect the improvement to be exceptionally robust. Underpinning this view is the industry's low capacity utilization, pressure on prices, rising costs and expenses for meeting emission legislation requirements and a long-term trend towards smaller cars with lower emissions but also generally lower profitability for the manufacturer.

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