NEW YORK–Moody’s has lowered its global vehicle sales forecast as the result of ongoing supply chain problems and the invasion of Ukraine.
Moody’s said it is lowering its light vehicle sales growth estimates 2.9% to 3.3% for 2022 and said it now expects global light vehicle sales in 2022 to rise around 3.3%, versus its earlier forecast of 6.2% growth.
For 2023, Moody’s said it continues to expect close to 6% growth, though from a lower base. The revision implies volume, in both years, will be about 2.3 million units fewer than previously forecast, Moody’s said.
In its latest forecast, Moody’s also said:
· The invasion of Ukraine will put further stress on supply chain. The main reason for cutting the forecast is due to protection outages at plants in the country that produce parts such as vehicle wiring harnesses, which further disrupted the automotive supply chain beyond the ongoing semiconductor shortage. “We expect, however, that supply bottlenecks are temporary and that more normal component supplies will be available from the third quarter onward. We also expect demand for vehicles to continue to exceed supply throughout the year,” Moody’s stated.
· Commodity price increases are a “major concern,” Moody’s said. “Indirect effects of the invasion include higher prices for energy and commodities, such as metals, for which Russia is a major supplier. These higher material prices result in higher production costs and ultimately prices for vehicles and could, together with higher energy costs, weigh on consumer sentiment globally — a serious risk for automotive the sector. While costs have risen, we do not currently expect physical supplies of metals like palladium or nickel to be cut off, as production in other regions can likely offset shortfalls from Russia.”
· Europe will see the biggest drop-off, while Russia will suffer most, with sales likely to drop about half, as a result of sanctions and suspension of production in the country by global automakers. For China, the largest automobile market, Moody’s said it continues to expect a steady 3% growth in vehicle sales in 2022, after robust 7.5% growth in the first two months of the year.
· North America sales growth is strongest. “We leave our estimates for North America largely unchanged at 18.7 million units for 2022, an increase of 6% versus last year. Availability of semiconductors largely stabilized after steep production cuts last year,” Moody’s said.
Stable Outlook
“Our sector outlook remains stable,” Moody’s stated. “We would consider changing the global auto outlook to negative if we expect a contraction in light vehicle sales, a slowdown in organic revenue growth to below 2.5%, and negative free cash flow. The outlook could change to positive if we expect aggregate organic revenue growth and median EBITA growth in excess of 5%, accompanied by solid free cash flow generation. However, we would only move to a positive outlook in a more stable business environment that would create better visibility for sustainable strengthening of credit metrics.”
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