New Delhi: The auto industry worldwide has been hit the hardest due to the outbreak of coronavirus and prompted Moody’s Investors Service to place substantially all the ratings across the sector under review for downgrade.
The downgrades covered $130 billion of auto manufacturer debt, but excluded debt held by the companies’ captive finance operations, Moody’s said in a release.
The US based rating agency has subsequently lowered the ratings on nine of the 22 global auto manufacturers it rates.
“While the number of downward rating revisions is substantial, the fact most automakers were not downgraded indicates that operating profiles and liquidity are better today than before the 2008-09 recession,” Moody’s said.
Nonetheless, the agency added more than three-quarters of the rated automakers have a negative or developing rating outlook, reflecting the potentially severe damage the recession could do to operating performance and credit metrics.
The coronavirus pandemic will depress demand for light vehicles through 2022Bruce Clark, Senior Vice President, Moody’s
“The automakers whose ratings were recently downgraded already faced major operational or competitive challenges and the recession likely will exacerbate these existing weaknesses,” said Bruce Clark, a Moody’s Senior Vice President. “Nevertheless, the auto industry as a whole is much better prepared for this downturn than it was for the last one, with ample liquidity, more manageable cost structures, more efficient automotive supply chains and a focus on earning returns on capital.”
Even so, the coronavirus pandemic will depress demand for light vehicles through 2022, Clark says. Sales are forecast to fall by at least 20% this year globally, with declines even greater in North America and EMEA, and will require several years before returning to 2019 levels, the agency noted.
“While auto demand cycles are common, what is so unusual about the coronavirus-induced downturn is the combination of a drop in demand and a shock to both the extended auto supply chain and auto distribution channels, which together make the timing and speed of recovery unclear,” Clark said.
Meanwhile, automakers whose ratings were confirmed by Moody’s, which total a little more than half, have a solid operational record, little need for a major restructuring, a strong market position, geographic diversity or premium brand focus and strong liquidity, all attributes that will allow them to compete once the recession subsides.
Source Name – Economic Times – Auto