Global carmakers may be on road to recovery

The sharp reduction in light vehicle production in the global automotive industry has started to moderate and very modest growth trends may be starting to emerge, Moody's Investors Service said in a six-month update of its Industry Outlook.
The trend toward a firming of business fundamentals among automotive manufacturers accounts for Moody's recent change in outlook on the sector to ‘stable’ from ‘negative’.
Moody's expects 59.4 mln light vehicles to be sold globally in 2009, a decline of about 8% from 2008. For 2010, Moody's looks for modest growth of about 2% globally due to a lower comparative base and the stabilising trend in global demand.
Although fundamentals for car makers are firming, Moody's does not expect the recovery to be particularly robust. Low capacity utilisation, pressure on prices, rising costs to meet stricter emissions requirements and tight credit availability for some consumers will continue to hamper auto makers' recovery.
"Those hurdles, combined with a long-term trend towards smaller, more fuel-efficient cars that are in general less profitable for the manufacturer, will continue to challenge their operations," said Falk Frey, co-author of the report.
There also remain distinct differences between markets. Sales in Western Europe were supported by government incentive schemes in 2009 and the effect may translate into a lower demand in 2010. "We estimate that about half of the sales supported by scrapping programs would have taken place during coming quarters anyway," said Frey.
In North America, the Car Allowance Rebate System (CARS), better known as Cash for Clunkers, provided a one-time sales boost in September.
"However, it did not fundamentally alter demand or the credit quality of original equipment manufacturers and suppliers," said J. Bruce Clark, Senior Vice President in the Corporate Finance Group. The Detroit-3 face three main operating challenges in the next 18 months, said Clark: "holding on to market share; developing new products that meet evolving consumer tastes and pricing those products competitively."