Auto Industry Credit Quality Declines in US & UK

The global automotive industry has felt the immediate impact of the COVID-19 economic slump, with factories across the world halting production or being hamstrung by supply-chain disruptions, whilst consumer demand rapidly shrinks.

US auto sales are expected to fall by at least 15% this year, and a reported 95% of all US auto production has been shut down as a result of the virus.

This slump is reflected in Credit Benchmark’s latest consensus data, with US and UK auto companies both reverting to credit deterioration after a recent brief respite.

Default Risk Increases After Temporary Respite

  • Credit quality for US- and UK-based firms worsens after a brief respite and overall probability of default remains higher compared to a year ago.
  • Credit Benchmark Consensus (CBC) rating is worse for UK-based firms.
Credit Trend US UK Auto March 2020

US Auto and Auto Parts Industry

The recent improvement in credit quality for US auto firms was short-lived. Credit quality for US auto sector firms has worsened by 0.4% from the prior month and by 4.5% from the same point last year. Average probability of default for these firms is 36.7 basis points, compared to 36.5 basis points the prior month and 35.1 basis points at the same point last year. The current Credit Benchmark (CBC) rating for this sector is bbb-, unchanged for the last 12 months.

UK Auto and Auto Parts Industry

Following last month’s update indicating improvement in UK auto industry credit quality, this month’s reading shows deterioration. Credit quality for UK auto sector firms has declined by 0.7% from the prior month and by 7.5% from the same point last year. Probability of default for these firms is 57.2 basis points, compared to 57.3 basis points the prior month and 53.8 basis points at the same point last year. The current Credit Benchmark (CBC) rating for this sector is bb+ and has not changed for the last 12 months.

About Credit Benchmark Monthly Auto Industry Aggregate
This monthly index reflects the aggregate credit risk for US and UK firms in the automobile and auto parts sectors. It illustrates the average probability of default for auto firms as well as parts suppliers to achieve a comprehensive view of how sector risk will be impacted by trends in the auto industry. A rising probability of default indicates worsening credit risk; a decreasing probability of default indicates improving credit risk. The Credit Benchmark Consensus (CBC) Rating is a 21-category scale explicitly linked to probability of default estimates sourced from major financial institutions. The letter grades range from aaa to d.

To download the March 2020 Auto Aggregate PDF, click here.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.