Issue: Feb 2013


Moody’s: Global Automaker Demand Trends Continue to Improve, Despite Weakness in Europe



by Moodys Investor Service

Despite current slowing demand, driven by weaker-than expected sales in Europe, light vehicles sales could rise in 2014, boosted by the improving global economy, says Moody's in its latest auto industry update published today. As a result, the outlook for the global automotive manufacturing industry is stable.

Moody's outlook for the global auto industry has been stable since September 2011.
Compared with Moody's expectation in September 2012 of a 3% decline in the current year, the rating agency now expects European light vehicles sales to shrink by 5% in 2013. This is mainly due to weaker-than-expected demand in northern European countries, especially Germany and the UK, and the absence of a recovery in southern Europe.

In contrast, for 2014, Moody's believes that western European light vehicle demand could be up by 5% as a result of the pent-up demand in key European markets after six consecutive years of decline. However, as the rating agency's macroeconomic forecast does not support a stark increase in car sales, visibility on the anticipated recovery is low.

"We have revised our forecast for 2013 demand growth to 2.3%, from 2.9% last September, but expect a more normal pace of global demand growth to resume next year if the global economy continues to improve," says Falk Frey, a Senior Vice President in Moody's Corporate Finance Group and author of the report.

Moody's anticipates the recovery of light vehicle demand to continue in the US, fuelled by a gradual recovery of the housing market. This will contribute to increasing consumer wealth and a growing ability to replace the relatively old vehicles on the road, which at present average more than 11 years of use. In line with its 2013 GDP growth forecast, Moody's forecasts light vehicle demand in China to grow by 7.0% in the current year, slightly lower than the rating agency's 8.5% growth forecast of September 2012, and by 7.0% again in 2014.

In addition, Moody's expects that Japanese demand will normalise in 2013. Sales rebounded last year after the slowdown caused by the tsunami and the earthquake in 2011. The rating agency believes a normalised level to be around 4.7 million units and anticipates demand in calendar year 2013 to fall by 11% to 4.7 million units and broadly remain at that level in 2014 (up 1% to around 4.75 million).

Moody's would consider revising the outlook to positive if global light vehicle growth was forecast to exceed 5% in the next two years and assuming that capacity did not outgrow demand, that utilisation rates improved (especially in Europe) and pricing remained firm.

Conversely, Moody's would revise the outlook to negative if global volume growth fell below 2%, net pricing declined and capacity utilisation rates deteriorated, or if it expected operating profits to decline for any other reason.

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