Moody’s Stabilizes Outlook on Auto Manufacturing

Moody’s Investors Service has reported that increased consumer car demand has changed the outlook on the global auto manufacturing industry over the next 12 to 18 months from negative to stable. According to the report, this is due to improved global economic prospects and lower sales growth requirements for the sector.

Moody’s report, Automotive manufacturing — Global, Outlook update: Changing outlook to stable amid improving business environment, is available on Moodys.com. The rating agency’s report is an update and does not constitute a rating action.

“Stabilizing 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,” said Falk Frey, senior vice president at Moody’s.

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

Global light vehicle sales are expected to rise 1.5 percent this year, 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, according to the company. Moody’s expects global sales growth to slow only slightly in 2019 to 1.3 percent.

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

World Outlook

Moody’s further reported that:

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

Growth in Western Europe will hit 2 percent, before slowing to 0.5 percent in 2019, driven by declining unemployment and stronger-than-average consumer confidence. Germany will be a standout in the region with 4-percent projected growth in 2018 due to the pull-forward effect of trade-in bonuses on older diesel vehicles. In Japan, sales will contract slightly this year before returning to modest growth in 2019 as improving labor market conditions and mild wage growth support strong household spending.