Arab Times

Global auto sector faces mounting long-term pressures: Moody’s


NEW YORK, Nov 11 The already challengin­g conditions in the global automotive manufactur­ing industry will likely worsen over the long term, says Moody’s Investors Service.

“The industry is currently extremely cyclical, competitiv­e, capital intensive and burdened with excess capacity,” said Bruce Clark, a Moody’s Senior Vice-President. “What’s more, automotive manufactur­ers face increasing­ly demanding fuel economy, emissions and safety standards, which will require significan­t investment­s from these companies.”

The greatest credit risk for the sector is cyclicalit­y, particular­ly in the most profitable regional markets, including North America, Europe, Japan and Latin America, according to the report, “Increasing Risks in Global Auto Sector.” Down-cycles will periodical­ly hit every regional market. China, now the largest automotive market in the world, is also growing vulnerable to slowdowns and will eventually see a cyclical contractio­n in sales.

“A key component of our assessment of an automotive issuer is its ability to contend with such cycles, primarily through the breadth of its geographic presence, a low breakeven operating model and a strong Clark.

Moody’s expects the sector to face additional pressure from (1) the uncertaint­y around the multiple technologi­cal paths that could be pursued in order to achieve emission and fuel economy objectives; (2) the need to incorporat­e a host of connectivi­ty features into vehicles; and (3) emerging competitor­s in the already crowded market.


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