Fitch: Stabilizing Trends in 2013 for U.S. Auto Sector Despite Economic Uncertainties

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<0> Fitch: Stabilizing Trends in 2013 for U.S. Auto Sector Despite Economic Uncertainties </0>

<0> Fitch RatingsStephen Brown, +1-312-368-3139Senior DirectorFitch Inc.70 West Madison StreetChicago, IL 60602orCraig D. Fraser, +1-212-908-0310Managing DirectororMedia Relations:Brian Bertsch, +1-212-908-0549 </0>

Credit profiles for U.S. auto manufacturers and suppliers will remain generally stable in 2013, assuming that global economic conditions follow current trends and the U.S. 'fiscal cliff' is resolved, according to Fitch Ratings.

Fitch expects worldwide auto demand will continue to grow in 2013, with moderate sales growth in North America and China and relatively modest growth in most other emerging markets. However, European demand is expected to fall further. U.S. sales are expected to remain below prerecession levels in 2013, with Fitch forecasting U.S. light vehicle sales of 15 million units next year, up 4.7% from the 14.3 million seasonally adjusted annual sales rate (SAAR) seen year-to-date through Nov. 30, 2012.

Continued economic growth in most regions of the world, with the exception of Europe, will result in stable free cash flow (FCF) production, modest leverage declines, and ongoing liquidity strength. Given the debt reduction and refinancing activity seen over the past several years, Fitch expects the U.S. OEMs and suppliers to increasingly target FCF toward shareholder-friendly activities, primarily share repurchases, in 2013.

Fitch also expects the auto industry will seek opportunities to pre-fund pension obligations, and some suppliers may use cash for acquisitions, although most acquisitions are likely to be small. If auto-market conditions deteriorate, Fitch expects the industry will focus FCF deployment more on liquidity preservation.

Fitch's base case assumption is that there will be a resolution of the 'fiscal cliff.' However, the auto industry faces downside risk should the associated tax increases and spending cuts come into effect. In the near term, if no agreement is reached, some customers are likely to hold off on purchases and others will likely buy less expensive vehicles. If the U.S. economy falls back into recession as a result of the 'fiscal cliff,' the negative ramifications for the U.S. industry will be much greater.

The full '2013 Outlook: U.S. Auto Manufacturers and Suppliers' is available at .

Additional information is available at .

Applicable Criteria and Related Research: 2013 Outlook: U.S. Auto Manufacturers and Suppliers

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