Fitch: U.S. Auto Credit Profiles Expected to Be Stable in 2014

NEW YORK--()--The credit profiles of most U.S. auto manufacturers and suppliers are expected to be stable in 2014, but Fitch Ratings could take some positive rating actions on certain issuers during the coming year. This assumes that global macro trends do not deteriorate and the pace of U.S. economic growth increases.

Fitch is forecasting U.S. light vehicle sales of 16 million units in 2014, an increase of 3.2% from the 15.5 million seasonally adjusted annual sales rate (SAAR) seen in the first 11 months of 2013, but still below the pre-recession peak. Growth in the U.S. will be driven by continued economic improvement, increasing consumer confidence, strong consumer credit access, low financing rates, and ongoing pent-up demand pressure.

Globally, Fitch expects light vehicle sales to rise in the low- to mid-single-digit range in 2014, similar to the growth rate in 2013. Global sales growth will be the result of continued demand strength in the U.S. and China and a gradual improvement in Europe. Although the European market is expected to grow, it will remain well below pre-recession levels.

Global demand growth will support margin improvement and free cash flow growth for U.S. auto manufacturers and suppliers in 2014. However, shareholder-friendly activities are likely to remain a focus for capital deployment. Certain OEMs and suppliers may look for debt-reduction opportunities, but it will not have the same high priority it did a few years ago. There may also be some acquisition activity in the sector, primarily among the suppliers.

Although the industry outlook is Stable, Fitch could take some positive rating actions on certain issuers during 2014. A potential candidate for an upgrade in 2014 is General Motors Company (GM), whose issuer default rating (IDR) is 'BB+' with a Positive Rating Outlook. Among the catalysts for an upgrade would be further North American margin growth, a decline in GM's European losses, and a continued commitment to a strong balance sheet now that the U.S. Treasury has completely sold its equity stake in the company. Fitch could revise Ford's Outlook to Positive during 2014 if trends point to further credit profile improvement in the intermediate term. Ford's IDR is 'BBB-' with a Stable Rating Outlook.

Fitch could revise the industry outlook to Positive if global economic conditions are stronger than currently expected, resulting in higher auto demand in much of the world. In particular, a greater rebound in the European market than currently envisioned could contribute to a positive outlook.

On the other hand, Fitch could revise its outlook to negative if global economic conditions unexpectedly weaken, resulting in a collapse of the global auto market. A meaningful increase in fuel prices, a steep rise in raw material costs or a freeze in company or customer access to financing could lead to a negative outlook, as would an increase in industry merger and acquisition activity or a rise in shareholder-friendly activities.

The full "2014 Outlook: U.S. Auto Manufacturers and Suppliers" is available at www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: 2014 Outlook: U.S. Auto Manufacturers and Suppliers (Modest Global Demand Growth Leads to Stable Credit Profiles)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726626

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or
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Contacts

Fitch Ratings
Stephen Brown, +1-312-368-3139
Senior Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Kellie Geressy-Nilsen, +1-212-908-9123
Senior Director
FitchWire
Fitch Ratings, Inc.
One State Street Plaza
or
Media Relations
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com