European car parts suppliers could face headwinds next year as growth regions like Europe, China and the U.S. will begin to weaken or fall to minimal positive growth.
The situation led Moody’s Investors Service to drop the sector’s outlook from positive to stable. The ratings agency previously reduced its growth forecast for global car sales to 2.7% this year and 1.1% for 2017 from 3% and 1.8%, respectively. However, as the value-per-car continues to increase, Moody’s anticipates the revenue growth for European car suppliers will continue to surpass global car production.
Aggregate organic revenue growth for the sector could thus slow to between 3.5% and 4% in 2017 following this year’s rate of 6%, putting the average rate of 4% to 4.5% over the next year and a half, which is below Moody’s threshold of at least 5% organic growth for a positive outlook.
“Moody's would consider changing the outlook to positive if it expects aggregate organic revenue growth to exceed 5% over the next 12 to 18 months and sees an increase in EBITA margins and stronger free cash flow generation,” the firm’s analysts said.
- Nicholas Stern, editorial associate