Fitch: Limited Risk to European Carmakers' Ratings from China Slowdown Endorsement Policy 27 Jan 2012 4:04 AM (EST) Link to Fitch Ratings' Report: European Carmakers and China
Fitch Ratings-Barcelona/London-27 January 2012: Fitch Ratings believes that the recent growth in new vehicle sales in China is not sustainable and expects a moderation in the foreseeable future to mid/high-single-digit levels, broadly in line with 2011 (5.2%), down from 40%-50% in 2009-2010. However, this should not have any immediate impact on European carmakers' ratings.
A weaker and more competitive car market would weigh heavily on the profitability of some manufacturers, for whom China has been a significant source of earnings and cash over the past three to five years. In particular, Fitch is concerned about political interference, high sales volatility and intensifying competition.
However, a decline in China sales due to lost market share or a contraction of the overall market for one to two years would be unlikely to trigger immediate downgrades as the companies most at risk (Daimler AG, 'A-'/Stable, and Volkswagen Group, 'A-'/Stable) have sufficient headroom in their current ratings. Nonetheless, the impact of a more prolonged decline would be reassessed by Fitch. PSA's ('BB+'/Stable) failure to increase geographic diversification in line with its strategy could put pressure on its ratings and limit upside potential, but the risk is not specific to China. Renault SA ('BB+'/Stable) and Fiat SpA ('BB'/Negative) have marginal exposure to China and would thus be little affected by a slowdown. Conversely, they are less well positioned to benefit from further expansion in China.
The full report looks at short-term risks and challenges such as higher competition, political interference, potential overcapacity, as well as long-term opportunities, including favourable demographics, improving infrastructure and low car ownership. The report also details European carmakers' exposure to the Chinese market and main elements of their strategy in the country.
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