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Auto Suppliers ‘Most Vulnerable’ During COVID-19 Outbreak

According to Moody’s Investors Service, the automotive industry is likely to see negative corporate credit implications due to COVID-19, as supply chain disruptions will be especially harmful to automotive companies.

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In a March 16 report, Moody’s says auto suppliers and the transportation industry lands in the “high exposure” category of Moody’s Coronavirus heat map, indicating potential near-term implications for credit quality and possibly ratings.

“This scenario assumes infections rise through the second quarter, leading to travel restrictions, quarantines, and closures of schools, factories and businesses in the most affected countries,” the report states. “We caution that as events unfold very rapidly on a daily basis, there is a higher than usual degree of uncertainty around our forecasts ,and our assessment will evolve over time with new developments.”

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Moody’s indicates automakers and auto suppliers, a sector already under stress due to weak auto sales, will likely be “exposed” due to the coronavirus.

“This is coupled with changes to the automotive market like stricter emissions standards that accelerate the shift to hybrid and electric vehicles, increasing costs related to research and development, engineering and capital reinvestment. Some automakers are under pressure already, but most are investment-grade or near investment grade,” the report states. “On the other hand, auto suppliers generally have lower ratings and more vulnerabilities. More than half of auto suppliers companies have ‘high’ exposure in our bottom-up analysis. We counted nearly 30 auto suppliers in this category across a much broader spectrum of ratings (Caa, B, Ba, and Baa) compared to airlines, cruise lines and lodging companies.”

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To read the full report, click here.

For more coverage on how COVID-19 is impacting the tire industry, click here.

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