Moody’s stabilises auto manufacturing outlook as economic recovery fuels demand

Monday 19th March 2018 | 0 Comments
 

Increased consumer car demand due to improving global economic prospects and a lowering of the rating agency’s sales growth requirements for the sector have changed the outlook on the global auto manufacturing industry over the next 12 to 18 months to stable from negative, says Moody’s Investors Service in a report (“Automotive manufacturing — Global, Outlook update: Changing outlook to stable amid improving business environment”) published 14 March.

The rating agency’s report is an update to the markets and does not constitute a rating action.

“Stabilising our outlook reflects the largely good profits and strong cash flow the global auto manufacturing sector has been able to generate, and our expectation that improved business conditions will boost global light vehicle sales,” says Falk Frey, senior vice president at Moody’s.

Moody’s has lowered its growth requirement for a stable outlook to 1 per cent-3 per cent sales growth from 2 per cent-5 per cent because automakers have been able to generate good profits and cash flows even when the industry fell short of its previous growth target.

Global light vehicle sales are expected to rise 1.5 per cent in 2018, unchanged from Moody’s forecast in December but off a higher base, given that reported 2017 sales were modestly stronger than the rating agency’s year-end projection. Moody’s expects global sales growth to slow only slightly in 2019 to 1.3 per cent.

Despite a modest rise in inflation, the positive macroeconomic environment should support consumer automotive demand with growth prospects improving in most major car markets. A notable exception is the UK, where Brexit-related uncertainty will weigh on consumer spending decisions.

In China, auto sales will grow 2 per cent in 2018 and 2.5 per cent in 2019 despite the expiration of a tax cut on small-engine passenger vehicles that could cool auto sales gains this year. US sales will contract by a less-than-expected 1.2 per cent in 2018 and 0.6 per cent in 2019 mainly due to a modestly improving macro environment.

Growth in Western Europe will hit 2 per cent, before slowing to 0.5 per cent in 2019, driven by declining unemployment and stronger-than-average consumer confidence. Germany will be a standout in the region with 4 per cent projected growth in 2018 due to the pull-forward effect of trade-in bonuses on older diesel vehicles.

In Japan, sales will contract slightly in 2018 before returning to modest growth in 2019 as improving labour market conditions and mild wage growth support strong household spending.

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