Tough road ahead for American auto giants, says S&P
Our Corporate Bureau
06 December 2002
"Consumers apparently are responding to a sluggish economy. After a string of exceptionally good sales years, the market is evidently saturated," says S&P's credit analyst Scott Sprinzen.
From a credit perspective, the recent downgrades of General Motors and Ford and previous credit ratings actions on all three companies over the past two years have been motivated by company-specific dynamics and adverse trends in industry fundamentals.
According to S&P, the market share of the Big 3 has also been under pressure across most product segments, notwithstanding the gains these companies have made in product quality and reliability. Moreover, the Big 3's aggregate share of the US light-vehicle market to date this year is off about 10 per cent from six years ago.
"Particularly worrisome have been market share losses in light trucks, vans, SUVs (sports utility vehicle), and pickups, which have been the Big 3's most profitable product segments," remarks Sprinzen. "Virtually all competitors have been broadening their light-truck product offerings, but Toyota and Honda have been particularly successful in increasing their presence, and these companies have been investing in North American light-truck production capacity to facilitate further expansion."
Industry-wide, incentive spending (including low-interest-rate finance incentives), especially by the Big 3, has also been increasing. This trend could accelerate as demand declines. Weak new-vehicle transaction prices have put pressure on used-vehicle prices, which are an important determinant of new-vehicle affordability for consumers (who typically rely on the trade-in proceeds to support a new-vehicle purchase) and of loan- and lease-related losses by the Big 3's finance units.