Auto hopes for rate cut, but profits down in 2024
A Morningstar Dbrs study predicts stabilising sales, but eroded by still high costs. The topic of consumer loans.
2' min read
2' min read
The 2024 of the car industry is linked to the trend ofinterest rates, i.e. the possibility for people to more easily access loans to buy a new car.
The Morningstar DBRS Study
The normalisation of demand in the automotive sector may lead to weaker profits, which may fall, but from solid levels. This is stated in a report by Morningstar Dbrs, according to which "the outlook for the automotive sector in 2024 is stable", with "moderate volume growth, partly due to the continued replenishment of inventories after the significant production disruptions of recent years and with untapped demand estimated to be exhausted by the end of the year". However, the rating agency expects 'continued cost-related headwinds, including higher labour costs, which could offset volume growth', especially when combined with 'the expected moderation in prices and product mix from the excessively high levels resulting from the continuing vehicle shortage'.
Profits still under pressure
All of this, according to Morningstar Dbrs, could translate into "an industry-wide earnings slowdown during 2024", which, however, "will have a modest impact on credit profiles, as companies' conservative financial policies and strong liquidity positions will continue to support their fundamentals". It is therefore possible that there will be an upward revision of the ratings, which currently have a positive outlook, while any negative actions should be limited and linked to a specific and significant underperformance of individual companies (Morningstar Dbrs assigns a BBB(High) rating to Stellantis with a stable trend). Automotive sales and profitability 'have been robust in recent periods, significantly reflecting favourable demand, which has incorporated significant latent demand'.
Hold on rates
The normalisation of the situation and a potentially more accommodative monetary policy, and thus more favourable to borrowers for car purchases, may in the coming months cause 'underlying car demand to move from unusually favourable levels to levels more consistent with historical trends'.
