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Challenges Lead to US Auto 'Fair' Outlook

Credit risk assessment in the U.S. automotive sector is stable. According to the latest Market Monitor from credit insurer Atradius, the sector is also facing high risks in financial conditions. The sector has a "fair" outlook due in part to tariffs and lower demand taking their toll on the credit risk outlook, which has worsened. The average payment time in the industry is 30–60 days.

The higher new-vehicle prices are the catalyst for lower consumer demand as is the use of ride share services such as Uber and Lyft, resulting in lower new car sales. The imposed tariffs have only affected profits a little in the sector as the higher prices have been passed down to customers. However, a potential 25% tariff on vehicles and parts from the European Union and Japan would "severely impact the industry, most probably leading to increased insolvencies," states the Atradius outlook.

Other challenges include domestic production shutdowns and environmental changes, i.e., traditional engines to alternative fuel and electric vehicles. "[W]e expect the credit risk situation for Tier 2 businesses to deteriorate in the coming 2-3 years, leading to higher annual insolvencies and a market consolidation," according to Atradius.

-Michael Miller, managing editor

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Wednesday, 26 February 2020