(The following statement was released by the ratings agency)
MOODY'S REPORTS: AUTOMOTIVE SUPPLIERS TO SEE MORE STABILIZED RATINGS IN 2004
NEW YORK, Jan 28 - The global automotive suppliers should see more stabilized ratings in 2004 compared with 2003, Moody's Investors Service says in its 2004 Outlook for the industry. "Benefits of new platform launches and an uptick in vehicular production, partially offset by price-downs, higher raw material, pension and OPEB costs, should allow automotive suppliers to deliver improved financial results and solid free cash flow generation that will further reduce debt levels," says Moody's Vice President and Senior Credit Officer George Meyers, who authored the report. He says favorable movement on selected ratings and rating outlooks may occur. However, continued sub-par financial performance by certain issuers may result in selected downgrades. In all, Moody's rates 53 automotive suppliers, who have approximately $56 billion in rated debt outstanding. Moody says 2003 proved surprisingly hard on the auto suppliers after predictions of a modest 3% decline in North American auto production looked manageable from a credit perspective given earlier cost cutting. However, rising raw material costs, particularly for steel, and higher energy costs, hurt operating margins, and a general uptick in credit improvement started in 2002, proved short lived. The coming year should be better, but offers no dramatic changes. In North America, Moody's expects 2004 light vehicle production to increase by 3% to 16.3 million vehicles, while remaining at similar levels in Europe. Medium trucks in the US should increase from 180,000 to approximately 195,000 units. Heavy truck production should reach 210,000 units, ending a three year slump. The United Auto Workers (UAW) settlement in September 2003, proved to be less costly than the previous contract, a credit positive, and sets the stage for potential savings if a two-tier wage arrangement can be brought to fruition "Consumers have continued to spend throughout 2003 despite significant economic uncertainty," says Meyers. "As a result, there is no pent-up demand to now accelerate growth." Moody's also says debt-financed acquisition activity may increase in 2004, leading to some negative rating actions. Much of the activity could take place in Europe, as outsourcing will gain momentum and cost-saving opportunities for the vertically integrated European OEMS become clearer. Otherwise, says Moody's, consolidation activity will probably be limited to acquiring complementary product lines or adding technology expertise, as vehicles become more dependent on electronic components. Moody's believes that consumer demand for improved fuel efficiency, superior driving performance and integrated interior technology and electronic, along with increasing regulatory requirements on safety and emissions, will likely continue to elevate the electrical and technological content per vehicle for the next five to ten years. Electrical systems integration will therefore become more crucial and will offer additional growth opportunities for suppliers offering that expertise. Consolidation, globalization, and outsourcing will continue to be dominant themes for suppliers. Both favorable and unfavorable conditions will attend 2004, but, overall, it will be an improvement over 2003.