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S&P sees U.S. auto suppliers' growth slowing

By: Theresa Clift

September 26, 2012

DETROIT (Sept. 26, 11:45 a.m. ET) — Standard & Poor’s expects earnings growth to slow at U.S. auto suppliers the rest of the year and into 2013, but most should not suffer credit quality downgrades because of it.

The lag in earnings will be caused by overseas business risks, the corporate credit ratings agency said.

“Following the Great Recession, these companies benefited from higher auto production after the multidecade lows of late 2008 and early 2009,” S&P credit analyst Nishit Madlani wrote in a report last week. “Most successfully reduced their break-even sales volumes while improving their credit ratios, building up their cash balances, and refining debt.”

Since August 2009, S&P has raised its ratings on nearly 75 percent of U.S. auto suppliers, but ratings on about one-third of them are still lower than they were in March 2008.

The report confirms what the Original Equipment Suppliers Association, a supplier trade group, has been hearing from its members.

Although costs were cut dramatically as the industry downsized during the recession, North American light-vehicle production has climbed about 71 percent from 2009 to 2012, OESA President Neil De Koker said in an interview.

“Things are very good for most suppliers in North America,” De Koker said. “Suppliers are being very careful about adding additional capacity and overhead.”

Suppliers at the greatest risk are those most exposed to Europe, where the industry is riddled with excess factory capacity and light-vehicle demand is slumping.

“This will continue to put significant pressure on profitability of the entire automotive sector in Europe until these adjustments are executed,” De Koker said.

Sweden’s Autoliv, which makes seat belts, airbags and other car safety equipment, said last week that the European market has been worse than anticipated in the third quarter while the U.S. market has been better than expected, according to Reuters.