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Credit Insights

Automakers Revving Up for 2011

Given our expectations of continued growth in sales and production in 2011, we review our current credit coverage list among the auto original-equipment manufacturers.

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The recovery in global auto sales continues to progress as pent-up demand is being relieved by higher sales resulting from improving economies. Given our expectations of continued growth in sales and production in 2011, we thought it would be appropriate to review our current credit coverage list among the auto original-equipment manufacturers.

Most names have no economic moats and high uncertainty ratings, so we do not differentiate our ratings based on those qualitative factors. However, the balance sheets of the group are generally quite strong, with six of the nine having close to zero net debt or net cash, and the others being only mildly leveraged on a net debt/EBITDA metric. Our coverage list is global, including U.S., Japanese, and European manufacturers. Given the global nature of the industry, most of the firms issue debt in more than one currency, allowing them to match costs and revenue as well as take advantage of different funding sources. This also gives bond investors managing different currencies opportunities to invest. Finally, all have finance subsidiaries, and most issue debt at both the parent and finance sub levels.

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Rick Tauber does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.