- The duration of the United Auto Workers strike against the three major North American automakers (Ford, General Motors, and Stellantis) is uncertain.
- Mexican auto suppliers are concentrated, with more than 50% of their total revenues coming from the three automakers.
- We expect the Mexican auto suppliers we rate, Nemak and Metalsa, could withstand an EBITDA decline of more than 10% before pressuring financial metrics.
- We think Nemak and Metalsa have sufficient liquidity sources to withstand a prolonged period of strike.
MEXICO CITY (S&P Global Ratings) Sept. 27, 2023--S&P Global Ratings does not expect the United Auto Workers (UAW) strike against Ford, General Motors, and Stellantis will trigger pressure on its ratings on Mexican auto suppliers Nemak S.A.B. de C.V. and Metalsa S.A. de C.V.
We believe that both Nemak (BB+/Stable/--) and Metalsa (BB+/Stable/--) could withstand a temporary drop in EBITDA without an impact on credit ratings. In particular, we do not believe the companies would face liquidity risks in covering working capital requirements or capex amid a potential reduction of EBITDA, since both have manageable debt maturity schedules and access to committed credit lines--$400 million for Nemak and $220 million for Metalsa.
On Sept. 15, 2023, the UAW began its strike against operations in individual U.S. facilities of Ford, GM, and Stellantis after failing to renew the workers' labor union agreement for the next four years. So far, the strike has reached 38 GM and Stellantis distribution centers and three operating facilities: a Stellantis center in Ohio, a GM Missouri plant, and a Ford assembly facility in Michigan.
Rated Mexican auto suppliers have a high revenue concentration, with about 53% of total revenues coming from the three automakers for Nemak and about 57% for Metalsa. In our view, the impact of the strike will depend on the current backlog given the specific models produced in the affected plants. Regarding the distribution centers, at this point we don't foresee a material effect on auto suppliers' production because the impact is more related to the after-sales service.
If the UAW and original equipment manufacturers don't reach an agreement, workers could expand the strike to other facilities, which, depending on the specific targets and duration, may translate into a bigger challenge for the rated Mexican auto suppliers. As a result, we conducted a sensitivity analysis for both auto suppliers. We believe that Nemak can sustain a 10% drop in EBITDA generation and Metalsa a 60% drop in EBITDA generation before we consider a substantial weakening of debt-to-EBITDA ratios.
Both companies have shown resilience in similar scenarios, such as the pandemic in 2020 (when plants closed for about two months) and another UAW strike in 2019 (which lasted about 45 days). They remained resilient by executing operating strategies to accelerate production rates, managing inventories that remain below historical levels, and maintaining constant EBITDA generation.
We will continue monitoring the duration and any negative implication of a prolonged strike. (For more, see "How Will The United Auto Workers Strike Impact Ratings In The U.S. Auto Sector?," published Sept. 15, 2023.)
- Nemak S.A.B. de C.V., May 19, 2023
- Metalsa S.A. de C.V., May 9, 2023
- Global Auto Sales Forecasts: Macro Risks Demand Pricing And Production Discipline, April 18, 2023
This report does not constitute a rating action.
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,600 credit analysts in 27 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.
|Primary Credit Analyst:||Humberto Patino, Mexico City + 52 (55) 50814485;|
|Secondary Contact:||Fabiola Ortiz, Mexico City + 52 55 5081 4449;|
|Research Assistant:||Ivana Cortes, Mexico City|
|Media Contact:||Jeff Sexton, New York + 1 (212) 438 3448;|
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