TEXT-Fitch: fiscal cliff could put brake U.S. auto sales growth

Thu Oct 4, 2012 10:17am EDT

Oct 4 - Although sales of cars and trucks in the U.S. took on speed last
month, Fitch Ratings notes that industry enthusiasm should be tempered as
meaningful near-term risk remains as long as the U.S. fiscal cliff remains
unresolved.

Improving consumer confidence, pent-up demand, and widespread availability of
financing have all helped drive U.S. car and truck sales beyond expectations
earlier in the year. Should the combination of tax hikes and spending cuts come
into force at year end, we believe it could lead to an unraveling of some of the
factors that have clearly helped buoy the industry over the past couple of
years.
To be sure, U.S. auto sales in September showed a nearly 13% year-over-year
improvement, and sales figures have been growing steadily for several years.
Regarding the fiscal cliff, in our opinion, it is likely that all or some of the
tax increases and spending cuts will be resolved or at least temporarily
deferred. With that said, the possibility of a nonresolution to the U.S. fiscal
cliff could precipitate some detrimental knock-on effects for the auto industry
that could potentially put the brakes on continued growth.

In our most recent "Global Economic Outlook," we projected that an unresolved
fiscal cliff would push the U.S. economy into another recession and lead to a 3%
cumulative loss of output by 2014. Tax increases would cause an immediate hit to
a majority of American incomes, forcing consumers to practice spending restraint
that would only be magnified when considering big-ticket items like cars and
trucks. In addition, a tapering off in consumer confidence and an increase in
unemployment would likely lead to further demand concerns for auto
manufacturers, who would likely increase incentives in an attempt to prop up
demand.

We note that, although the pricing environment has held up well over the past
several years, it could also change quickly should government spending cuts and
rising taxes take effect. Combined with the ongoing weakness in Europe and the
slowing of demand in most developing markets, an unresolved fiscal cliff could
severely hit U.S. auto manufacturers and parts suppliers just as they appear to
be hitting their stride.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article, which may include hyperlinks to companies
and current ratings, can be accessed at www.fitchratings.com. All opinions
expressed are those of Fitch Ratings.
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