Proposed emissions limits threaten global automakers'' profits: S&P

The world''s automakers, already straining under the pressure of saturated demand in major markets and intense global competition, now face a longer term threat to their financial performance: stringent environmental legislation to reduce vehicle emissions and increase fuel efficiency.

Tightening vehicle emissions legislation in the world''s major car markets pose a significant threat to the credit quality of global automakers, says a new report published by Standard & Poor''s Ratings Services, Can Global Automakers Meet Emissions Limits Without Steering Off The Road?

With many automakers suffering declining profits or operating losses, the proposed emissions standards-estimated to cost between $1,300 and $1,900 per vehicle in the US and between €600 and €3,000 in Europe-could seriously undermine profitability.

"We consider there is a real risk to global automakers'' financial performance, particularly as some are already under pressure from razor-thin margins," said Standard & Poor''s credit analyst Maria Bissinger.

Even BMW AG (A+/Stable/A-1), the most profitable automaker, generating about €2,200 in operating profits per vehicle, may be confronted with higher costs to meet the proposed new standards due to the high carbon dioxide (CO2) emissions of its fleet. Many European volume automakers achieve less than €500 profits per vehicle (excluding earnings from financial service operations), but are closer to the proposed future emissions target.

For the US automakers General Motors Corp. (GM; B/Negative/B-3) andFord Motor Co. (B/Negative/B-3), as well as the Chrysler unit of DaimlerChrysler AG (BBB/Stable/A-2), struggling with the more immediate concerns of reducing legacy costs and stemming huge cash losses from their North American automotive operations, shifts on the much longer-term regulatory horizon would only become a key factor in the credit ratings once substantial progress is made in their respective turnarounds, the report says.