Moody's Investors Service has revised the outlook for the global automotive manufacturing industry to negative from stable amid weakening global demand, the credit rating agency says in a new report. The outlook reflects expectations for fundamental business conditions over the next 12-18 months.
"We lowered our outlook on the industry to negative to reflect the challenges automakers around the world will face as a result of softening demand following an extended period of growth in key markets," noted Bruce Clark, a Moody's Senior Vice President.
"And while profitability in the sector was previously supported by robust growth and strong margins in US and Chinese markets, today's revised outlook underscores the plateauing demand in the US, coupled with meaningfully diminishing demand in China."
Moreover, sales in Europe are forecast to contract modestly in 2017 while Japan will see sales growth of less than 1% in the timeframe.
In 2016, US sales will increase 0.3% and decline modestly by 0.6% in 2017 as pent-up demand experienced during and after the recession wanes.
Moody's says demand in the Western Europe auto market also appears to have peaked after posting 8% volume growth in 2016. Manufacturers' ambitious volume expectations for new models will keep pricing pressures high, which could prompt discounting and incentives that eat into profit margins and cash flows.
Auto sales in China will grow 2.7% in 2017 as compared to 6.7% growth this year. If a tax cut on passenger vehicles with engines of 1.6 liters or smaller is extended by the Chinese government beyond year-end, it could positively affect sales growth in 2017. However, Moody's current expectation is for the tax cut to expire at the end of this year.