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European Auto Makers to Struggle: Moody's

European auto manufacturers will struggle to maintain credit ratings in a very difficult environment despite expected long-term global growth in demand, Moody's Investors Service said in a report. Over-capacity is just one of several challenges the Original Equipment Manufacturers are facing, the agency added.

Other problems include dependency on Western European and domestic markets, raw material prices and the strength of the euro versus the U.S. dollar and Japanese yen. "Additional costs from stricter environmental and safety requirements will further reduce the already very thin margins of European manufacturers," Moody's said.

Regarding individual manufacturers, Moody's said sustained volume growth and market share gains will be key for Fiat to be lifted into investment grade, while the performance of Renault is also expected to improve from 2008 as it enters into an intensive phase of model launches. This year, however, Renault's negative trends in sales volume and market share are expected to continue, Moody's noted. Meanwhile, Moody's expects Volkswagen to consolidate its market position in Western Europe at the high level of 20% after years of rapid growth.

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