trending Market Intelligence /marketintelligence/en/news-insights/trending/SyzSZjTdX6cT4g8BZf603w2 content esgSubNav
In This List

Auto parts supplier profits to drop amid lower production: Moody's

Blog

Using ESG Analysis to Support a Sustainable Future

Video

S&P Capital IQ Pro | Powered by Expert Insights

Blog

Q&A: Streamlining Analytics for TCFD Reporting

Blog

Evergrande and the wider impact: a sentiment analytics based perspective


Auto parts supplier profits to drop amid lower production: Moody's

Moody's expects EBITA for the North American auto parts suppliers to fall about 9.7% in 2019, more than double the decline the rating agency predicted in early 2019.

"This downward revision is consistent with our revised forecast for a contraction in global light vehicle sales this year and through 2020," lead author Timothy Harrod said in a report, adding that Moody's expects global auto sales to fall 3.8% in 2019 and 0.9% in 2020 amid softening demand in China and Europe.

The union strike at General Motors Co. could also impact auto suppliers' profits, Harrod said.

The United Auto Workers strike, which began Sept. 16, could cause lower vehicle production, which would negatively impact sales, profits and cash flow for auto parts suppliers.

More than 48,000 GM workers went on strike after the automaker failed to reach a deal with the UAW . On Oct. 1, GM idled a plant in Mexico and temporarily laid off around 6,000 workers due to parts shortages.

Light vehicle sales in the U.S. are expected to see a 2.9% drop in 2019, Harrod said. Parts manufacturers will need to adjust to the shift in consumer preferences as automakers cut back on passenger car production in favor of SUVs and trucks.

Weakening demand in China and Western Europe also impacted the financial services company's forecast for light vehicle sales.

The report said unit sales in China are expected to drop 6.5% in 2019, compared with Moody's previous forecast of 2% growth. In Western Europe, demand is expected to decline 2% in 2019, instead of 0.4% growth the agency had expected earlier.

More investments in global electrification strategies could also diminish cash flow for parts suppliers, Harrod said.

"With regulatory deadlines approaching, particularly in Europe, suppliers that provide technologies related to emission reduction and electrification are likely to increase capital reinvestment to support new vehicles," the report added. "Pending implementation of stricter emission standards in Europe and China will trigger numerous new plug-in hybrid and electric vehicle launches."

Moody's report said its outlook for the North American automotive parts supplier industry is negative.