Fitch: Autos & Auto Suppliers Should See Improvement in 2010 but European Region Will Be Challenged

NEW YORK--Following up on its 2010 outlook press releases issued last November, Fitch Ratings has released its full 2010 outlook reports for the global automotive industry and U.S. & European auto suppliers. According to Fitch, the auto industry's weakened condition is set to improve in 2010 after global auto sales likely bottomed last year. Credit quality for U.S. auto suppliers is expected to improve but will continue to be challenging for European suppliers.

Credit profiles for autos remain mixed, with U.S. manufacturers still the most competitively disadvantaged and European manufacturers facing a difficult home market. While the auto industry's performance will improve in 2010, the recession did not lead to the material cut in assembly capacity and industry consolidation that was anticipated at the start of the auto industry and financial crises, notably because of social and political issues. This missed opportunity will remain a major constraint to higher industry profitability for the foreseeable future.

Fitch expects auto sales in the U.S. and Japanese markets to turn positive this year from a historically low base, but for sales in Europe to decline as a result of a payback effect from incentive schemes in that region being phased out. Developed markets recovery will be slowed by high unemployment, weak consumer confidence, and the lost wealth effect from lower housing prices especially in the U.S., and some European countries including the U.K. and Spain.

U.S. auto suppliers' financial profiles should strengthen in 2010, as a result of higher vehicle volumes, reduced costs and improved capacity utilization. Credit quality had already begun to improve in late 2009 given access to credit and the capital markets, adequate liquidity and debt maturity extensions. Fitch says some positive rating actions are possible for U.S. suppliers in 2010.

Fitch believes the overall credit quality of the European automotive supply industry will likely remain under pressure in 2010. For companies rated by Fitch, margins should improve given cost cutting and restructuring; however, free cash flow is expected to be significantly less than 2009.

The full reports, 'Global Automotive Industry Outlook 2010' and 'U.S. & European Auto Suppliers Outlook 2010' are available at 'www.fitchratings.com', under the sectors:

Corporate Finance >> Corporates.

Additional information is available at 'www.fitchratings.com'.

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