Moody's Investors Service is increasingly negative about the outlook for automotive suppliers. It said most low-rated suppliers face liquidity problems.
The New York-based credit rating agency said its outlook on auto suppliers had been declining even before the events of September 11. But since the terrorist attacks, consumer confidence in North America and Europe has fallen and investors are avoiding auto-related companies.
'We expect liquidity concerns to be a significant problem for most high-yield [bond] issuers,' said Lisa Matalon, Moody's vice president and senior analyst.
Publicly owned suppliers with less than investment-grade ratings are most affected because the bond market investors and banks are shunning the sector, she said.
How do buyers feel?
The key to healthy auto sales in 2002 and, in turn, performance of the auto parts sector, will be consumer confidence, Matalon said.
'The auto parts suppliers that are likely to fare the best over the next year are those which are most diversified in terms of product line, geography, and OEM exposure, as well as those which service both the OEMs and the aftermarket,' she said.
'Auto parts suppliers with proprietary technology or who operate in growth niches are also likely to perform at a higher level.'
Moody's and others issue ratings based on companies' ability to repay debts. Ratings broadly fall into variations of A and B, which investors and lenders consider lower risk, and C, which is considered significantly greater risk. The lower the rating, the more a company must pay to borrow.
Many auto suppliers have already been operating near breakeven and have little room for further cost cutting, Moody's said.
Among automakers, Moody's recently lowered ratings for DaimlerChrysler, GM and Ford. But Toyota Finance's relatively high credit was reaffirmed and Nissan is being reviewed for a potential upgrade.
* Hayes Lemmerz was downgraded to C from Caa2 on $900 million (E1 billion) on a series of guaranteed senior subordinated notes.
* Valeo was placed on review for possible downgrading on bonds and short-term notes.
* Exide Technologies was downgraded on $1.7 billion of debt.
* The UK's Tomkins plc was rated Baa2/Prime-2 with a stable outlook on a £750 million (E1.2 billion) note.