DUSTIN WALSH

Moody's cuts supplier outlook; future uncertain

Dustin Walsh covers auto suppliers for Crain's Detroit Business, an affiliate of Automotive News.

DETROIT --  Investment rating agency Moody's this week cut its outlook for auto suppliers from "positive" to "stable" as materials cost continue to rise and some production forecasts continue to fall.

Suppliers rode high during market recovery that began in late 2010, performing well above the S&P 500.

However, the recent market flip-flops have crippled auto suppliers' stocks.

Since July 27, stock for Southeast Michigan's public suppliers has been declining, underperforming against the S&P and Dow Jones.

The suppliers are down more than 18 percent since the end of July, compared to the S&P 500 which is down 12.5 percent.

Declining demand in North America going into fall plays a role in the decline, but weaker credit conditions in the emerging markets of China and India are also contributing, according to Moody's Investor's Service.

The sectors' top performers over past 12 months are feeling the sting.

BorgWarner Inc. and TRW Automotive Inc. outperformed the S&P by more than 100 percent from late 2010 through spring, but are feeling the pinch of a weakening recovery.

BorgWarner is down more than 10 percent since Aug. 1 and Livonia-based TRW is down more than 18 percent.

Visteon Corp. has taken the biggest hit, suffering from a predominantly Asia-based business.

The electronics, interiors and lighting supplier is down more than 26 percent since Aug. 1. Rumors still circulate around potential merger and acquisition deals as the Visteon's operations and joint ventures provide instant access into the emerging markets as credit in those regions tightens.

But despite forecasts showing declined demand, it's still up from the previous downturn. Moody's is forecasting an 8 percent increase this year and a 16 percent gain next year.

"This will benefit the U.S.-based parts suppliers, most of whom still have a significant portion of their business with the U.S. automakers' domestic manufacturing operations," Moody's said Tuesday. "Nevertheless, flat demand in Western Europe -- the North American suppliers' largest overseas market -- and margin pressures temper our outlook for the sector."

The materials market is shaky, too, and the fluctuating costs have investors worried.

Resins, steels and other metals continue to rise incrementally and continue to spark investor trepidation. So, for now, the only certainty in the sector is uncertainty.

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