S&P sees high risk of Ford, GM ratings downgrade on auto tariffs
Analysts expect 2% US auto sale decline
Ford Motor Co. and General Motors Co., along with nearly a dozen car-parts suppliers, are at high risk of a negative ratings action in the coming weeks if looming tariffs from the Trump administration take effect, according to an S&P Global Ratings report.
Tariffs could impact the earnings and cash flows of Ford and GM in ways that won’t be offset by mitigating factors, analysts including Nishit Madlani wrote in a Monday report. Both companies are rated investment-grade by the firm; BBB- in the case of Ford and BBB for GM.
The report assumes that cars imported from outside North America would be subjected to a 25% tariff, while those assembled in Mexico, Canada and the US would face a more complicated rate based on where the parts come from. The forecasts “carry a significant amount of uncertainty” given the Trump administration’s quickly changing approach to tariffs, the analysts noted.
Shortly after the report was released on Monday, US President Donald Trump said that he is exploring temporary exemptions on auto tariffs so that companies have more time to set up manufacturing in the US.
The direct tariff fallout for most auto-parts suppliers will not be as significant because the costs are likely to be passed onto automakers, the analysts expect. But some suppliers already have a “low cushion” to downside triggers, given their high levels of debt and weak cash flow.
Some of the junk-rated parts suppliers deemed to be risky include Cooper-Standard Holdings Inc., Burgess Point Purchaser Corp., and IXS Holdings Inc.
The analysts expect US auto sales to decline by about 2% this year to around 15.5 million units, with prices jumping 5% to 10% for consumers. If China’s export restrictions on seven rare earth elements take effect, it could further disrupt the supply chain and put a bigger dent in sales, they said.
–By Dorothy Ma (Bloomberg)
