Global credit rating agency Moody's Investors Service said on Monday that its outlook for global automotive manufacturers and parts suppliers is negative.
In its research report, titled "Automotive Manufacturers And Parts Suppliers - Global 2020 Outlook", released on Monday, Moody's said: "Our 2020 outlook for global automotive manufacturers and parts suppliers is negative, driven by our expectations of a continued decline in global light vehicle sales."
Moody's expects the global car sales to decline for third consecutive year. According to Moody's, the global demand for light vehicles will remain sluggish amid weakening economic growth in key markets.
Expecting the growth of gross domestic product (GDP) in China and advanced G-20 countries, Moody's said the negative outlook for the sector is based on its forecast of a 0.9 per cent decline in light vehicle sales following a projected 3.8 per cent decline in 2019.
According to Moody's, political risks, technological changes and environmental regulation will weigh on sector.
The rating agency said Chinese auto sales should eke out a modest one per cent gain, while the contraction in Western European car sales will widen; Japan is on track to post a fourth consecutive year of modest sales growth.
Moody's said light vehicle sales in the US are expect to slip 0.6 per cent in 2020 after falling by a projected 2.9 per cent in 2019. Less aggressive incentives and increased competition from the used car market will contribute to the modest contraction in demand, it added.
Light vehicle sales are expected to fall three per cent in Western European markets in 2020, according to Moody's.
"Demand remains constrained by a weakening macroeconomic environment and the continued uncertainty over the UK's plans to exit the European Union," Moody's said.
"The proposed merger of Fiat Chrysler Automobiles NV ('Ba1' positive) and Peugeot SA ('Baa3' stable) would create the world's fourth-largest automaker, but there are significant uncertainties regarding whether they will reach a definitive merger pact," the report added.
Moody's expect China's overall auto sales to rise one per cent in 2020, as supportive policy guidance announced during 2019, including relaxation on vehicle-ownership control, bolsters auto demand.
In the case of Japan, Moody's said that despite a difficult global sales environment, Toyota Motor Corporation ('Aa3', stable) and Honda Motor Co Ltd ('A2', stable) are maintaining stable margins. Both are effectively managing US incentives, while Honda's profitable motorcycle segment is helping to offset the much lower margin of its auto business, according to Moody's.
"It will be some time before Nissan Motor Co. Ltd.'s (A3 negative) profitability recovers; the company continues to refresh its US models and plans to reduce manufacturing capacity in North America, Europe and some emerging markets," the research report said.
According to Moody's, beginning in 2021, the European Union will require automakers to reduce fleet-wide emissions for new cars to an average of 95 grams of carbon dioxide per kilometre, down from the previous limit of 130 g CO2/km; emissions limits for individual automakers will vary depending on the weight of each company's fleet.
"Implementation includes a phase-in period in 2020, when the emissions limit will apply to each automaker's 95 per cent least emitting new cars; the average emissions of an automaker's entire fleet must comply beginning in 2021," the report said.
Pointing out the penalties for non-compliance could run into billions of euros, Moody's said Japanese company Toyota is already very close to meet its targets, while German premium automakers are still 20-30 per cent short of their targets, and Fiat Chrysler and Honda are furthest behind in meeting their targets.