European suppliers' prospects helped by region's recovery, Moody's says

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PARIS (Reuters) -- European suppliers' prospects should be boosted by a recovery in domestic demand for new cars, coupled with continued emerging market growth, Moody's credit rating agency said.

Outlining its "stable" outlook for the industry over the next 12-18 months and citing a rebound in light vehicle demand and an improved geographic spread, Moody's said free cash flow "remains a concern." It said there is unlikely to be a return to positive cash flow this year.

Moody's said in a statement today that it will consider changing the outlook to "positive" if the European auto market returns to a stable growth path, with organic growth -- which usually excludes external factors such as acquisitions -- consistently exceeding 5 percent, translating into solid free cash flow generation for the automotive suppliers.

It would lower the outlook to "negative" if the stabilization of the European market proves unsustainable or if the Asian growth engine weakens.

Moody's noted that increased light vehicle demand is important for supplier growth and profitability.

The agency said companies with a broad international footprint should be able to achieve organic growth well above 5 percent in 2014. It said these include Autoliv, Michelin and SKF.

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