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The outlook for the global auto industry over the next 12-18 months remains stable so far, thanks in part to rising sales in China, India and Europe. But looming trade tensions and the threat of tariffs could hurt sales next year, said Moody's on Tuesday.
The credit rating agency said it expects light vehicle sales worldwide to grow 1.5 percent this year and 1.3 percent in 2019. But ongoing trade and tariff disputes, rising interest rates and higher fuel prices could all dampen sales next year. This comes as automakers have to continue making big investments in alternative fuels and other technologies to comply with environmental regulations and fend off new competitors and technological disruption.
"Recent profit warnings from leading carmakers suggest that the sector will be contending with the prospect of greater downside risk in the year ahead," the report said.
China remains relatively healthy and is key to Moody's outlook. Sales there are expected to slow slightly next year, but Moody's is still expecting growth rates at or above 2 percent over the next year.
China sales are expected to offset slight declines in sales in the U.S., which has seen record and near-record levels of sales of around 17 million vehicles or more.
Economic growth in emerging markets such as Russia, India and Brazil will also either remain strong or rebound in the months ahead.
Tougher emissions rules are one of the factors that could drain cash, the report said. While President Donald Trump has put Obama-era fuel economy plans on hold, both state governments in the U.S. and other governments abroad are developing their own standards. Many manufacturers are having to sink money into developing new electric vehicles and answer challenges from upstarts such as Tesla and Chinese firms with global ambitions.
"Financially strong companies will be best positioned to manage the added drain on their resources," Moody's said. "But increased spending will likely put further pressure on the sector's already low margins."