Moody’s stabilises auto outlook

Moody’s Investors Service has changed the outlook on the global auto manufacturing industry over the next 12 to 18 months from negative to stable.

The move is based on the increased consumer car demand due to improving global economic prospects and a lowering of the rating agency’s sales growth requirements for the sector.

Moody’s has lowered its growth requirement for a stable outlook to one to three per cent sales growth from two to five per cent because automakers have been able to generate good profits and cash flows even when the industry fell short of our previous growth target.

Global light vehicle sales are expected to rise 1.5% 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%.

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 two per cent in 2018 and 2.5% 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% in 2018 and 0.6% in 2019 mainly due to a modestly improving macro environment.

Growth in Western Europe will hit two per cent, before slowing to 0.5% in 2019, driven by declining unemployment and stronger-than-average consumer confidence. Germany will be a standout in the region with four 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.

‘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,’ said Falk Frey, senior vice president at Moody’s.