S&P Ratings Sees Automakers Facing Sales, R&D Pressures

December 02, 2019 by Jerry Hirsch, @Jerryhirsch

S&P Global Ratings is out with its annual assessment of the global auto market and it’s not a pretty picture.

The giant corporate credit rating service expects virtually no growth for global auto markets over the next several years.

“Economic conditions have worsened globally as a result of the trade war between the U.S. and China. The risk of a prolonged German weakness and a recession in the U.S. will further dampen consumer confidence and, consequently, prospects for auto sales over the next two years. In light of current conditions, global auto manufacturers’ hopes for ever-increasing sales in 2020 and 2021 now appear to be dashed,” S&P said.

Here’s the breakdown by region.

THE U.S.

S&P expects to see a 1 percent to 3 percent sales volume dip in the U.S.

“We anticipate light-vehicle sales volume will drop by nearly 3 percent year-over-year to 16.4 million units in 2020 and further to 16.3 million units in 2021, the lowest level since 2014,” the firm said. S&P sees a 30 percent to 35 percent chance of a recession over the next year.

The U.S. market is undergoing a massive transition in product mix.

“We expect rising demand for light trucks – including SUVs, CUVs, minivans, and pickups – will lower passenger car sales to about 30 percent of total light-vehicle sales in 2019 and 2020 compared with over 50 percent in 2012. Automakers are set to shrink their passenger car exposure further, in our view,” S&P said.

CHINA

China’s auto market is unlikely to see a return to hyper-growth any time soon, S&P said.

“We anticipate decelerating economic momentum, higher household leverage, and slowing disposable income growth will continue to exert a negative influence on consumer sentiment. Nor do we expect much in the way of targeted stimulus, given local governments’ fiscal constraints, and the central government’s larger tolerance for economic slowdown,” S&P said.

The trade war is weighing on both the U.S. and Chinese economies.

S&P expects auto sales volumes to rise 2 percent to 4 percent in China. Product launches that target the higher-price range will drive that growth. Premium brands such as BMW, Lexus or Daimler outperformed in 2019. We expect the trend to extend into 2020,” S&P said.

EUROPE

Germany’s economy is sluggish. And is the only growing auto market in Europe. Brexit looms over England and the continent.

“Brexit remains a source of uncertainty in Europe mainly because we don’t spot progress on any trade-related agreement between the EU and the U.K.,” S&P said.

Don’t expect any sales growth.

“Automakers will depend on refreshing the product mix to defend pricing power and topline growth. An offensive of hybrid and battery electric vehicles will hit the European market as from 2020,” S&P said. Volkswagen, across all segments, and Tesla in the premium market, will be the competitors to beat,” S&P said.

PROFIT PRESSURES

Automakers in all regions will face increasing profit pressures as they are required to make substantial investments in electric vehicles and other technology at a time when sales are easing.

“We expect the U.S. automakers to collaborate on battery development for electric vehicles and autonomous driving capabilities. GM and Honda will continue their joint development of a new purpose-built shared autonomous vehicle. The companies’ ability to leverage its recent investments in these areas would be an upside,” S&P said.

Jerry Hirsch November 19, 2019
Nikola Motor Co. said Tuesday that it achieved a landmark breakthrough in battery technology that could double the range of electric vehicles without adding any weight.

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