Auto hopes for rate cut, but profits down in 2024

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The 2024 ofauto industry it is linked to the performance of interest ratesi.e. the possibility for people to be able to access loans more easily to buy a new car.

The Morningstar DBRS study

The normalization of demand in the automotive sector may lead to a weakening of profits, which may fall, but from solid levels. This is what we read in a report by Morningstar Dbrsaccording to which “the automotive sector outlook in 2024 is stable”, with “a moderate growth in volumes, also thanks to the continuous replenishment of stocks after the significant production interruptions of recent years and in the presence of still unexpressed demand which is estimated to be exhausted within the year”. However, the ratings agency expects “a continuation of cost-related headwinds, including rising labor costs, which could offset volume growth,” especially if combined with “the expected moderation in pricing and product mix products compared to the excessively high levels due to the continued shortage of vehicles”.

Profits still under pressure

All this, according to Morningstar Dbrs, could translate into “a slowdown in profits across the industry during 2024”, which however “will have a modest impact on credit profiles, because conservative financial policies and the companies’ solid positions in terms of liquidity will continue to support their fundamentals”. It is therefore possible that there will be an upward revision of the ratings which currently have a positive outlook, while any negative actions should be limited and linked to a specific and significant underperformance of individual companies (Morningstar Dbrs assigns a Stellantis rated BBB(High) with stable trend). Automotive sales and profitability “have been robust in recent periods, significantly reflecting favorable demand, which has incorporated significant latent demand.”

Waiting on rates

The normalization of the situation is one monetary policy potentially more accommodating, and therefore more favorable to those who need to apply for loans for the purchase of carswill be able in the coming months to ensure that “underlying automotive demand moves from unusually favorable levels to levels more consistent with historical trends”.

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