(The following statement was released by the ratings agency)
LONDON, Oct 31 - Moody's Investors Service says that the credit outlook for Japanese automotive suppliers is negative overall, but select competitive companies should maintain their credit quality.
In a new study, entitled "Japanese Automotive Suppliers Outlook: Credit Quality Stable for Rated Companies," Moody's attributed the negative outlook to the impact of the declining local procurement needs of Japan's automakers as they continue to move production offshore. Moody's believes that some suppliers -- often referred to as "Tier 1" suppliers with the ability to implement cost reductions -- are expanding their business with automakers domestically and abroad, a development which supports their credit quality. But those lacking such abilities are being or will be forced to scale down their operations. Moody's in its study says it considers various factors when assessing the credit quality of automotive suppliers, but three are of particular relevance. The first is their abilities to meet the auto industry's ongoing and rising demands on quality and costs.
Suppliers must now be able to cope with automakers' requests on cost reductions, procurements abroad and efficiency, while at the same time maintaining required quality levels. The second factor comprises the ability of suppliers to maintain strong and sustainable business relationships with automakers, and the extent to which they can expand cooperation with such companies right from when development for new vehicles starts. The third factor is the ability to expand business with automakers with which no or little relationship currently exists. Finally, the Moody's study says that ongoing requests from automakers in Japan for cost reductions have cut into the margins for conventional auto parts. For suppliers to keep growing, they need to seek opportunities in high quality products, for example, those which enhance safety and comfort and those which are environmentally friendly.
The long-term ratings of Japanese automotive suppliers -- Denso Corporation (Aa3), NSK Ltd. (Baa2), NTN Corporation (Baa2), and Koyo Seiko Co., Ltd. (Baa3) -- have remained unchanged for more than 4 years.