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Automakers to Feel Impact from Disruptive Trends

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Thursday, October 19, 2017/4:.00PM / Fitch Ratings 

Fitch Ratings expects that automakers will feel the impact on cash flows, budgets and business profiles from the significant increase in resources needed to invest in radically new technology and changes in personal mobility. 

Disruptive developments that automakers face range from the shift to electric cars, to the impending use of autonomous vehicles as well as different forms of car ownership and new mobility services. 

In particular, legislation to tighten global emission is pivotal for the industry. We expect further massive investments in powertrain technology to reduce emissions of CO2 and pollutants and an accelerating shift towards new energy vehicles. Failure to meet upcoming targets could also trigger fines in some regions. 

Regulations on emissions also constitute major legal and reputational risks as regulators and the public increasingly focus on compliance after the Volkswagen scandal. Automakers also need to replace revenue lost from selling fewer cars with new sources of income, especially in the context of new mobility trends such as car sharing and ride hailing.

Some of these developments are likely to accelerate in the foreseeable future, but they remain medium-term propositions with some degree of uncertainty. Nonetheless, these trends require ongoing investments, which are already burdening earnings, cash generation and financial structures.

Although the shifting landscape is unlikely to have a direct impact on issuers' ratings in the near term, a rapid change in the competitive environment could alter Fitch's view regarding an issuer's market position and business positioning.

These trends are discussed in more details, together with the different developments affecting the automotive sector, in the special report "European Automotive Manufacturers Handbook". 

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