Moody's upgrades auto industry outlook to stable from negative

Key Points
  • Moody's upgrades its outlook for the auto industry, based on an improved business environment.
  • A slowdown in U.S. auto sales is now projected to be smaller than feared.
An employee polishes the hood of a BMW AG 7-Series sedan at the assembly line.
Dimas Ardian | Bloomberg | Getty Images

Moody's said Wednesday it expects sales of cars, SUVs and light trucks to be stronger this year than previously projected.

The ratings agency upgraded its outlook for the global auto industry from negative to stable, partly in light of improving business conditions.

Prospects for growth are improving in most major car markets except Britain, where Brexit-related uncertainty is expected to weigh on consumer spending, Moody's said.

Moody's also lowered the growth rate it required to give the industry a stable outlook because automakers have delivered good profits and solid cash flows in spite of missing the agency's previous target rate of 2 to 5 percent. Now, the required range is just 1 to 3 percent.

Moody's left its December forecast of a 1.5 percent rise in sales for 2018 unchanged.

In addition, U.S. auto sales are expected to shrink less in 2018 than Moody's previously forecast. Automakers are now expected to sell 16.9 million light vehicles in the U.S. in 2018, up slightly from Moody's December forecast of 16.8 million.

Overall improvements in the economy partly drove that adjustment. Moody's now forecasts U.S. gross domestic product to grow by 2.7 percent in 2018 and 2.3 percent in 2019, up from previous estimates of 2.3 percent and 2.1 percent, respectively.

Sales of autos in the U.S. were down in 2017 after two record-setting years.

However, consumer tastes have shifted in recent years to SUVs, crossovers and pickup trucks, which tend to command higher transaction prices, and thus more profits for automakers. Many in the industry believe the shift to be either permanent or at least long term.

In addition, the expiration of a tax cut on small vehicle purchases in China is expected to soften auto sales gains in 2018, the firm said. China's auto market is expected to see 2 percent growth in 2018, and 2.5 percent growth in 2019.