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Moody's places 7 European carmakers on review for downgrade on coronavirus risks

Moody's on March 25 placed the ratings of Daimler AG, Jaguar Land Rover Ltd., Peugeot SA, Renault SA, Volkswagen AG, Volvo Car AB and McLaren Holdings Ltd. on review for a possible downgrade, citing the risks associated with the coronavirus outbreak.

The rating agency said the auto sector is among the industries bearing the brunt of the pandemic given its "sensitivity to consumer demand and sentiment." The agency forecasts a meaningful reduction in the demand for new vehicles over the coming months, especially in the markets of Europe, the Middle East, Africa and North America.

Moody's said the weaknesses in these companies' credit profiles have left them vulnerable to shifts in market sentiment.

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Moody's also placed Fiat Chrysler Automobiles NV's ratings on review with direction uncertain and downgraded Bayerische Motoren Werke AG's long-term issuer rating to A2 from A1. The German carmaker's ratings are also under review for further downgrade.

The agency said its review on Fiat Chrysler balances the challenges the entire auto industry is facing. However, Moody's said it still believes that the Italian American company's proposed merger with Peugeot will result in a higher rating compared to Fiat Chrysler's current rating.

Meanwhile, Moody's said its decision to downgrade BMW was driven by the company's already weak positioning in the A1 rating category even before the coronavirus outbreak came to light.

In assessing the affected companies' ratings, Moody's said it will look into the outbreak's impact on the automakers' manufacturing operations, including the impact from the temporary closures and the decline in global automotive production.

The rating agency said it could consider raising the companies' ratings if the market situation stabilizes, leading to a recovery in metrics, and if adjusted debt/EBITDA drops back sustainably below 1x with an EBITA margin sustainably above 8%.

Moody's added that a further downgrade could result from BMW's failure to return to meaningful operating profit generation in the second half of 2020.

The agency said it expects to solve the review process within the next three months.