Global Auto Sector Report (Part 1): Donald Trump Slaps 25% Tariff on Foreign Made Vehicles; Automakers to Face Volume, Margin Trade-off; Dealerships Better Positioned 

Relevant Items:
Automotive Sector Report (December)
Global Auto Sector Report Part 2
 

 

Yesterday, March 26, U.S. President Donald Trump signed an executive order imposing 25% tariffs on imports of foreign-made cars from April 3, a decision that threatens to erase a significant share of the industry’s profit and could have major repercussions for the global auto sector.

The key measures in this executive order are as follows:
 

• Tariffs of 25% on all cars and trucks that have not been assembled on U.S. soil. This will be added to the base rate of 2.5% currently in effect. This includes, with some exceptions, vehicles built and assembled in countries that have signed free trade agreements with the United States, notably Canada, Mexico and South Korea.

• Parts will also be subject to tariffs, but slightly later (initial round on May 3): The published factsheet mentions engines, transmissions, powertrain parts and electrical components but also says that it could expand “if necessary.”

• Some exemptions for imports from Canada and Mexico will apply: Vehicles that previously benefited from special conditions under the U.S.-Mexico-Canada Agreement, or USMCA, trade agreement will be able to submit documentation justifying the share of U.S. content in each model. As a result, a vehicle built in Mexico with 45% of U.S. content will be subject to the 25% tariff on 55% of its value only.

In the short term, with companies rushing to ship vehicle inventories to the U.S. before the new tariffs apply, we expect working capital levels to rise along the supply chain and therefore hit cash flows.

Beyond April 3, seeking to protect their already thin margins, most suppliers are adamant that they will pass all tariff-related cost increases to their customers. If that’s the case, automakers will then be faced with the choice of passing on tariff costs to the end customer or preserving volumes by taking on some of the costs.

This situation could last at least 18 months, which is the minimum time needed to relocate production of an automotive factory. Also, relocation comes with high execution risk and at a significant cost, with higher labor costs to be factored in and significant planning costs needed to reestablish the existing complex supply chains.

Companies under our coverage have not yet communicated on their intentions based on the new tariffs regime. We have nonetheless summarized below their recent communications on the topic.

In a previous report discussing U.S. tariff threats, we outlined that, among the “Detroit Big 3,” GM is the most exposed to U.S. tariffs on Mexico’s exports, with 26% of its sales being cars made in Mexico and imported into the United States. Ford and Stellantis have imports into the United States representing 9% and 10% of their revenue, respectively.

Among European OEMs under our coverage, Jaguar Land Rover is the most exposed to U.S. tariffs as their entire production footprint is outside the United States.

Among suppliers, Adient has a notable exposure to Mexico, with 18% of its revenue and about 9% of its operating facilities in the country. American Axle also has 19% of its manufacturing facilities in Mexico.

Dealerships, while likely being passed the brunt of cost increases down the supply chain, seemed to be relatively best positioned within the sector. New vehicle volumes would likely be negatively impacted given the potential price increase, though dealers might benefit from consumers flocking toward used vehicle purchases and potentially higher used vehicle gross profits.

Dealers would most likely benefit from strength in the parts and service segment as consumers would likely delay vehicle purchases and continue to service their existing vehicles for longer. This is an extremely profitable segment for dealers and given that the average vehicle age in the United States is already elevated at over 12.5 years, service and maintenance volumes are likely to continue to trend upwards.

OEMs Pricing Strategies in Focus as Short Term Production Relocation Unrealistic

In the wake of tariffs implementation, we expect OEMs to carefully manage pricing actions as any increase of what is already considered by the consumer as elevated prices would strain overall industry volumes.

Ford’s CEO, James Farley, said during an auto conference on Feb. 11, that “long term, a 25% tariff across the Mexico and Canadian border would burrow a hole in the U.S. industry that we have never seen.” The company had said a week earlier in its fourth-quarter earnings call that from an operational standpoint, a few weeks of tariffs are manageable “given the rate and flow of [its] products,” though protracted tariffs at the 25% level on Mexico and Canada would wipe out “billions of dollars of industry profits.” In its 10K filing, Ford said that it specifically would see earnings reduced significantly over the course of the year if 25% tariffs were implemented and remained in place for an extended period.

General Motors said it took steps in the trailing few months to reduce inventory held at international plants by more than 30% to limit the potential near-term impact if tariffs go into effect and have game planned for potential scenarios, though it is not committed to longer-term strategies at the moment given the long-term uncertainty. The company said in the short-term, it can offset “30% to 50% of the tariff,” though longer-term remains more of a question mark.

Stellantis, owner of the Chrysler, Jeep and RAM brands, provided less of an outlook on how tariffs might impact the company, saying it was premature to take much of a view. The company seemingly was willing to move more longer-term production into the U.S. though it reportedly expressed a belief that USMCA-compliant vehicles should remain exempt from tariffs.

European automakers have also held off on taking any long-term decisions so far. Volkswagen, which generates 21% of its sales in the U.S. market with a significant portion being exports from Mexico, declared that a short-term shift of models from Mexico to its U.S. plant as “not realistic”.

Jaguar Land Rover, which last year generated 31% of its sales in the United States, all from imports, declined to say whether it would consider opening a factory there to help minimize the impact of tariffs. In January, it said it is “engaging closely” with the U.K. government on the topic. “We need to wait for clarity to emerge on this,” PB Balaji, the CFO of its parent company Tata Motors, said on a call with reporters.

According to Volvo Cars, which generated 16% of its sales in the United States last year and has one facility in South Carolina, its CEO said there is enough capacity to move production of some of its models to the United States “depending on tariffs.” The group also confirmed its plan to export its European-made EX30 SUV model to the United States later this year.

Parts Suppliers’ Earnings Resilience the Most at Risk

For parts suppliers, years of close collaboration have made automotive supply chains throughout the United States, Mexico and Canada so tightly knit that many components used in the vehicles cross borders multiple times.

Seeking to protect their already thin margins, most North American suppliers are adamant that they will pass all tariff-related cost increases to their customers.

Dana for instance said that it intends to pass on 100% of any tariff costs to OEM customers. Car seat maker Adient said it has a “not-insignificant” amount of direct manufacturing exposure to Mexico but it has informed its customers that whether it is a 25% tariff or any level, this is not a burden it is prepared to take on its “P&L” on an ongoing basis. Further, it said that there will be “a need for recovery that has to be passed through the value chain.”

Some suppliers could be subject to their own tariffs-related cost increases, specifically relating to aluminum and steel, which they may or may not be able to pass on to the OEM customers.

Also, for those suppliers selling domestically with only the end-product eventually shipped and sold in the United States, exposure is through production volumes in Mexico being exported to the United States, something over which they have less control. This contrasts with other suppliers that export their parts to the U.S.-based customers, and are thus directly exposed to tariffs.

The former situation was summarized by Phinia management, which said the biggest risk with tariff costs is that “it can’t be absorbed by the suppliers. And it’s probably going to be difficult to be 100% absorbed by the OEMs. So it’s going to have an effect on the consumers, which then obviously is going to have an effect on volumes.”

The message from European suppliers is similar, with some of the continent’s largest suppliers such as ZF, Forvia and Valeo warning that they would be unable to absorb the costs and would look to pass at least some of it to their customers.
 

North American OEMs
 

While all North American OEMs would be negatively impacted if tariffs remained in place for a prolonged period, Stellantis and GM appear relatively more exposed than Ford. However, GM has said that it can mitigate about 30% to 50% of tariff impacts in the short-term through tactical shifts to U.S. facilities without deploying any capital.

For investors seeking moderately higher yields, Ford’s 9.625% unsecured notes due 2030 are indicating a yield around 6.12%. S&P recently revised its outlook on Ford to negative from stable on its belief that 2025 margins will be compressed, though it affirmed its rating at BBB-. We think investors can take some comfort in the fact that the notes are indicating a slight yield premium to the BB index, implying that a downgrade is already priced in.

North American Suppliers
 

American Axle has significant exposure to Ford, GM and Stellantis, which have a material manufacturing presence in Mexico and could cut production and thus limit orders. The recent acquisition of Dowlais could be viewed as a credit negative, as it involves $2.2 billion of new secured debt financing that would rank senior to the company’s existing unsecured notes and the company will be pressured to realize synergies from the combination in the near-to-mid-term. There may be risk for investors of spread widening on the company’s secured notes due 2028 and 2029 given a potentially prolonged tariff environment and execution risks.

Car seat manufacturer, Adient has material direct manufacturing exposure to Mexico with its labor that cut and sew car seats, and while the company has said it plans to pass on tariff costs, OEMs could seek out alternatives in the longer term or they could limit production of vehicles Adient manufactures seating for in the near-term. That said, the company’s secured notes due 2028 are indicated at a yield of 6.5%, which is a substantial premium to the BB index despite its issue level rating of BBB-. Even if the company faces a potential downgrade given the extent of tariffs, there appears to be limited downside for the notes. Further the company is less than a half turn levered through the secured tranche of debt.

Goodyear continues to focus on deleveraging with the use of proceeds from its sales of the OTR and Dunlop businesses going toward paying down debt. The transformation plan continues to progress, with operating margins up significantly in 2024 versus the prior year, though low-cost tire imports from Southeast Asia continue to eat into the company’s volumes. It remains to be seen if a potential blanket tariff could mitigate the volume impact from low-cost imports, though a relative positive for Goodyear versus other suppliers could be its higher exposure to the replacement parts market. We believe that new vehicle volumes could be pressured if tariff costs are passed onto consumers, which would likely push consumers toward extending the lives of their existing vehicles. The company’s unsecured notes due 2029, which are indicating a yield in the low 7% area may offer a relatively safer option for investors relative to single-B credits that could be more negatively impacted by tariff implications.

Phinia’s first lien notes due 2029 are indicating a yield in line with the BB index at 5.93% and its unsecured notes due 2032 are indicating a yield of about 6.71%. Phinia, a manufacturer of fuel and electric systems as well as aftermarket products for vehicles, has generated ample levels of free cash flow consistently and it has significant aftermarket exposure if new vehicle production slows as a secondary impact of tariffs. Despite indicating a yield in line with the index, which may limit spread tightening potential, investors may view Phinia’s secured notes as relatively safe versus other supplier credits given low leverage through the secured level and relatively less exposure to the original equipment market.

North American Dealerships
 

Among the North American car dealerships, companies with larger scale appear relatively stronger positioned to absorb the potential margin pressure from tariffs. Given that both suppliers and OEMs are likely to pass through the majority of tariff costs down the supply chain, dealers will have to push through higher cost new vehicles to the consumer, which will likely have a negative impact on volumes. However, this group may be able to offset new vehicle pressures to some degree with potential higher margins in used vehicle sales and a benefit to the parts and service segment.

The strongest positioned credits within this group are dealers with larger scale that could absorb potential margin pressures on the new-vehicle side. The subsector is indicating a yield relatively tight to the index, likely reflecting the relatively minimal impact of potential tariffs versus other subsectors within automotive, though Lithia Motor’s unsecured notes due 2031, indicating a yield of around 6% may offer investors some safety within the sector at a yield that is in line with the BB index.

For investors seeking higher yields, Carvana’s secured 13% cash / PIK interest notes due 2030 may stand out. While the notes are indicating a yield that is relatively tight to the single-B index, in the low-to-mid 7%’s, the notes were just upgraded to B from B- by S&P, with the rating agency saying that it could upgrade the company further in the next 12 months if operating performance continues to improve. Volumes increased substantially in 2024 and improved its gross profit per unit margin by over 400 bps despite industry-wide pressure on used vehicle prices. It has deleveraged significantly over the trailing few quarters and the company said its focus remains on further deleveraging. There is potential for further spread tightening given Carvana’s momentum in operating improvement and potential for additional rating upgrades.

Octus’ recently published automotive dealer subsector analysis can be found HERE.

North American Rental Cars

We have concerns about Hertz’s ability to improve metrics from pressured levels as pricing has continued to decline while costs have spiked. It has consistently posted metrics well inferior to its peer Avis, despite Avis’ own deterioration over the trailing few quarters. The company said it will hit a liquidity lowpoint at mid-year and require additional debt funding to complete its vehicle refresh. Management said that it expects EBITDA to reach breakeven by the end of 2025, though debt levels remain elevated and the company has consistently underperformed against guidance. Its notes continue to widen and while its secured (B) and unsecured notes due 2029 (CCC+) both indicate significant premiums to the single-B and stressed indexes, further spread widening may be on the horizon if the company doesn’t substantially improve its performance in the near-term.

Competitor, Avis, appears relatively better off despite its own metrics declining. We are more confident that Avis can achieve its target metrics by the end of 2025 given that the company has outperformed Hertz consistently for the past few years though we fear the subsector as a whole is facing pressures that may be more existential. For investors seeking higher yields in the auto space, Avis’ unsecured notes due 2029 may offer an enticing premium with yields indicating in the high 8%’s. If the company’s rotation into newer vehicles can drive operating costs lower and it can fend off pricing pressures, there may be a spread tightening opportunity, though execution risk will be substantial.

Octus dove deeper on rental car trends in a recent subsector analysis, which can be viewed HERE.

European OEMs

Among European OEMs covered by Octus, we view Renault favorably as it continues to improve its financial profile, despite the pressures from the fleet electrification.

In recent years, Renault has significantly reduced its production costs and operates with an average 90% capacity utilization rate. It achieved a 5.9% operating margin in 2024 in its automotive division, or about 1.5 percentage point above the level reached in 2018, the last industry peak. It expects further improvement in 2025 despite a forecast one percentage point hit on its operating margin to incentivize electric vehicle sales.

Net cash position also improved in 2024 by €3.4 billion to €7.1 billion driven by operational free cash flow generation of €2.9 billion. As a strong performer, Renault’s bonds are all trading around par with low yields of around 3%. Octus’ coverage of Renault is HERE.

We are more cautious than in the past on Jaguar Land Rover because, in our view, downside risks have increased lately given 1) the group’s exposure to Trump’s plan to implement tariffs on imported vehicles and 2) execution risk in relation to the full relaunch of the Jaguar brand as a pure electric brand in 2026. Also in China, retail sales are under pressure with the group citing the country’s economic slowdown affecting retailers and clients’ availability of financing.

JLR’s 2029 dollar notes are yielding 6%, above Stellantis’ 2031 notes yielding 5.7% and Ford’s 2030 notes yielding 6.2%. The premium car manufacturer was upgraded by S&P in August to BBB- investment grade, but retains a below-IG Ba2 rating with Moody’s. Octus’ coverage of Jaguar Land Rover is HERE.
 

McLaren’s ownership change is gaining momentum after state-owned Bahraini investment outfit Mumtalakat signed a definitive binding agreement to sell McLaren to Abu Dhabi-based investment vehicle CYVN Holdings. There is no clarity yet on the turnaround strategy of its potential new owner. On an LTM basis, volumes sold amounted to 3,000, which is materially below the group’s long-held target of reaching 4,500 vehicles, similar to levels achieved in 2018 and 2019. In the nine months to Sept. 30, 2024, the business was loss-making with a negative EBITDA of £19 million.

The luxury car marker’s 7.5% 2026 dollar notes are now back at par, up from 97 in December. Octus’ coverage of McLaren is HERE.

European Suppliers

Automotive suppliers’ BB-rated bonds are yielding on average about 5.3%, well above the BB index average yield of 3.9%, reflecting the deteriorated business environment of the automotive sector.

From a risk-reward perspective, we are constructive on OPMobility (fka Plastic Omnium), Forvia and Valeo.
 

At a time of industrywide pressures and tariff-related uncertainties, Forvia’s resilient earnings and cautious financial strategy will support its credit profile stability.

Forvia features a strong business profile encompassing scale and geographic diversification, with a moderate exposure to Canada and Mexico but a sizable exposure to China, a country which is set to outperform global automotive markets in 2025 and which has historically generated profitable growth for Forvia.

From 2.0x at the end of 2024, the group aims to deleverage to 1.8x or lower in 2025 and “below 1.5x” by the end of 2026, supported by the sale of assets. This is lower than Schaeffler’s own guidance of reducing leverage to 2.5x in 2025 but higher than Valeo’s 1.3x at the end of 2024.

Forvia’s deleveraging track record is supported by positive free cash generation and asset disposals. The group decided not to distribute a dividend in 2025, illustrating the focus on reducing leverage.

Forvia issued euro-denominated notes last week at 5.625% at par. See Octus’ primary analysis HERE.

According to Valeo, the sub-5% yield on its 2030 notes reflects the issuer’s relatively robust business profile and its ambition to regain investment grade ratings, although this is unlikely in the near term. Net debt €3.8 billion at the end of 2024, translating into a net leverage of 1.2x (1.3x as reported). It is aiming to reach 1.0x, albeit the timeline for this is not really clear. For 2025, the group is guiding for an EBITDA margin between 13.5% and 14.5% of sales and free cash flow before financial expenses but after one-off restructuring costs in the €450 million and €550 million range, compared to 13.3% and €481 million, respectively, in 2024. The group has a sound liquidity amounting to €4.8 billion including €3.2 billion of cash.

According to OPMobility, or OPM, a supplier of bumpers, fuel tanks and front-end modules, it outperformed in 2024 the automotive market in Europe and North America, two of its key markets, respectively accounting for 50% and 29% of its revenue. It was also one of the few auto suppliers to meet its earnings guidance in 2024, though at 8.1% in 2024, its EBITDA margin remained below Forvia’s and Valeo’s, which generate margins in the 11% to 13% range.

For 2025, OPM expects to improve earnings and free cash flow, though the dividend policy of a 50% payout will limit deleveraging. About 76% of its revenue is powertrain agnostic, suggesting that it will be able to protect earnings despite the electric vehicle sales slowdown. At 1.8x, leverage is moderate and below most peers, which mostly have leverage between 2.0x and 4.0x.

OPM’ 2029 senior unsecured notes are quoted at 102 and yield 4.3%. Octus’ primary analysis is HERE.

Single-B rated automotive suppliers are also yielding significantly more than the index, which could tempt some investors, though the uncertainties surrounding the industry outlook will weigh on pricing in the near term.

Adler Pelzer was one of the few companies in the sector not to lower its earnings guidance last year and is guiding to €215 million to €220 million of EBITDA for 2024, up from €197 million in 2023. Margin for the first nine months of 2024 was 9.8%, which remains below peers but has improved of late as the company is currently managing its cost structure well. The company does not generate significant free cash flows, but shareholders have been supportive in the past, providing a degree of comfort. Net leverage is relatively modest at an Octus-calculated level of 2.4x as of Sept. 30, 2024 and 3.3x when excluding joint-ventures.

The business is majority owned by the Scudieri family with a minority stake held by Japan’s Hayashi Telempu Corporation, or HTC. The senior secured bonds due 2027 with a coupon of 9.5% are quoted in the mid-90s and yield 12.1%. A number of investors Octus spoke to in recent weeks view this as a buying opportunity, since the group looks “well placed to ride out the downturn” and should be able to refinance down the line. See our story HERE.

In the stressed/distressed category, we are cautious on Standard Profil. To address its overlevered capital structure and avoid a liquidity shortfall, we estimated that the group has a liquidity need in the €40 million to €70 million range. It is unclear whether Actera, the company’s financial sponsor, would be willing to support the business by committing more capital.

Last week, we revealed that the sponsor and bondholders were exchanging proposals and were vying for control via buying the RCF. The group’s senior secured notes due April 2026 are quoted in the mid-50s, according to Solve. See our story HERE.

Auto supplier Antolin needs to secure waivers and an extension of its term loan if it wants to avoid a debt restructuring, as discussed in our recent recovery analysis. Last week, we reported that bank lenders were considering selling out and that over €100 million of Antolin’s exposure was being offloaded by Santander in a loan portfolio sale.

European Car Rental/Leasing

While not yet out of trouble, U.K. long-term vehicle lessor Zenith has made progress toward improving its credit profile after news emerged that its sponsor injected £50 million into its securitization, a facility which was extended by one year to November 2026.

The latest financials, for the nine months ended Dec. 31, 2024, pointed to a YTD adjusted EBITDA decline of 28.4% to £33.8 million, driven by residual values on electric vehicles in line with our forecast published late last year. Adjusted EBITDA excluding residual values rose 16.1% year over year while orders increased by 37% on the same timeframe, as businesses see company vehicles as a cost-effective way to retain employees.

With the bonds issued at the corporate level due June 2027 and a CCC rating at S&P since late January, it remains uncertain that these improvements will be enough to clear the roadblocks toward a regular refinancing.
 

While not yet current, Hertz’s secured notes due December 2026 remain on watch, with the company saying it will reach a low point of liquidity at the midpoint of 2025 and a persistent cash burn over the past few quarters. The notes most recently indicated a yield over 30% and have widened considerably over the past few weeks.

As much as $200 million of Dana’s unsecured notes due April 2025 remain outstanding, though the notes are trading at par given that the company had $494 million in cash as of the end of the fourth quarter. It also had $1.14 billion in unused RCF capacity as of the end of the fourth quarter.

 

In Europe, Europcar held a non-deal roadshow at the end of 2024 to gauge investor appetite for the refinancing of its €500 million 3% senior secured bonds due October 2026, sources recently told Octus. Europcar’s notes are currently priced at 98.1c and are yielding 4.2%.

Investors following the situation have expressed mixed views about the company, with some questioning whether there will be support from its anchor shareholder Volkswagen, which is going through its own challenges because of a slowdown in the auto sector and increased competition from Chinese rivals.

Some distressed debt funds have taken a short position in the company following a weak operational performance recently, while concerns are high over residual value risk and deteriorating liquidity.

Spanish supplier Antolin faces around €120 million of debt amortization later this year (including about €80 million under Facility A6 and about €20 million under the European Investment Bank facility), €61 million in 2026 and €59 million in 2027. However, we note the preliminary FY’24 results pointed to a €25 million repayment under facility A6 in the fourth quarter ahead of the July 2025 due date. As highlighted in Octus’ recovery analysis published earlier this month, Antolin will need to negotiate with term loan facility lenders an amend-and-extend agreement with a waiver of the current amortization schedule and preserve liquidity.

Last but not least, time is running out for Standard Profil to address the maturity of its fully drawn €30 million RCF maturing April 2025 and the €275 million senior secured notes due April 2026. The RCF is owned by Bank of America as well as Cross Ocean Partners, sources told Octus.

Bondholders including Tresidor, BlueBay Asset Management, Shiprock and PVTL have formed a new ad hoc group after the previous group dissolved, Octus reported in January. The AHG was set to meet with Actera in Istanbul on March 24 to try to agree a restructuring of the company after having exchanged proposals and counterproposals with the sponsor.
 

The following price movers report is generated using Credit Cloud by Octus. To access the full report, click HERE.

Fallers:
 

• Antolin’s €250 million 10.375% senior secured notes due 2030 have slid into the 70s since their issuance at par in July last year. The notes are now quoted at 75 and yielding 19% according to Solve.

  Investors Octus spoke to say they are increasingly concerned about the liquidity of the Spanish automotive supplier given its historically high cash burn and looming debt amortization. These worries are amplified by the already weak outlook for automotive production, even before factoring in potential setbacks from new tariffs. Octus’ recovery analysis published earlier this month can be found HERE.

• The spread on Hertz’ $500 million unsecured notes due December 2026 have dropped almost 30 points to the low 60s since early February after the company posted yet another quarter in which it underperformed relative to expectations and vehicle depreciation costs were higher than expected. Investors seem to be pricing in an increasing risk of a default before the end of 2026, with a persistent cash burn from the company and a potential additional headwind depending on the U.S. Supreme Court’s decision regarding the postpetition interest and make-whole claim from the company’s noteholders. All the company’s debt instruments have traded down significantly, though the unsecured tranches of notes have faced the most pressure.

• Prices on Avis’ unsecured notes due 2029 and 2031 declined by about 6 points and 9 points, respectively to about 89 and 96, respectively, since early February after the company reported weak results and announced it would be accelerating disposals of its fleet. It appears better positioned than Hertz to turnaround key fleet efficiency metrics, though 2025 credit metrics will be strained as the company completes the fleet rotation and with concerns on overall consumer discretionary spending health. More near-term maturities were relatively less impacted, though the price on the company’s unsecured notes due 2027 dropped about 3 points to 96 since early February.

Risers:
 

• McLaren’s dollar-denominated 7.5% notes due 2026 are now at par after the announcement of a binding agreement to sell the the U.K supercar manufacturer to Abu Dhabi-based investment vehicle CYVN Holdings LLC. They were trading in the low 90s until late October and mid-90s until mid-December.

• U.K. long-term vehicle leasing group Zenith saw the price of its 6.5% 2027 bonds go up by a few points in the last three months despite a downgrade to CCC+ by S&P late January. The bonds are now quoted at 76 after having traded as low as 65 last year and 73 year-to-date. Early March, the company disclosed that sponsor Bridgepoint injected £50 million of cash collateral into the securitization facility.

• Goodyear Tire’s 2027 and 2029 both traded up a few points since the beginning of January following a few positive developments for shorter-term bondholders. The company announced on Jan. 7, that it had agreed to sell its Dunlop brand for $701 million and would use proceeds to reduce leverage and fund initiatives in connection with its Goodyear Forward transformation plan. Additionally, on Feb. 3, the company completed the sale of its previously announced divestiture of its off-the-road, or OTR, tire business for $905 million. Similarly, the company said it intends to use proceeds toward deleveraging and to fund Goodyear Forward initiatives. Further, the company redeemed its $500 million of 9.5% notes due May 2025 on Feb. 19.

• Privately held parts-maker Tenneco‘s secured notes due 2028 rose to about 98 from about 92 between early January and early March on the company’s announcement that an Apollo fund and American Industrial Partners would be making a $1.55 billion equity investment into the company’s clean air and powertrain businesses. Sources said this equity injection would go into a new subsidiary that will guarantee and collateralize the company’s existing debt. Additionally the company reported that its EBITDA increased 25% year over year in the fourth quarter.

 

• American Axle, on Jan. 29, announced an agreement to acquire Dowlais, an autoparts manufacturer based in the U.K., for $1.44 billion in cash and stock. The company said it intends to raise $2.2 billion of new debt financing to fund the deal and to pay down existing Dowlais debt. The company expects pro forma net leverage for the transaction to be about neutral to pre-transaction net leverage of 2.8x but that it will prioritize deleveraging until it reaches its target of 2.5x. On Feb. 24, the company announced it had increased its revolver capacity by $570 million to $1.5 billion and syndicated $2.186 billion in new secured bridge financing in connection with the transaction.

• On March 18, IHO, the holding company that owns majority stakes in both Schaeffler and Continental, issued a €320 million tap of its senior secured PIK toggle notes to repay outstanding drawings under the €1 billion revolving facility due 2028. At the end of December, as discussed in our earnings analysis, total debt was €3.4 billion with an average cost of debt 7.4%. Octus’ primary analysis on IHO’s initial dual currency notes offering from last year is HERE.

  Later this month, Schaeffler itself issued €1.15 billion worth of bonds due 2028 and 2031 for general corporate and financing purposes. The bonds were “oversubscribed several times” according to the company’s release.

• On March 19, French autoparts supplier Forvia priced €750 million of senior notes due 2030 at 5.625%. Proceeds from the issuance will be used to repay in full the €750 million senior notes due 2026. The refinancing is leverage neutral, with pro forma leverage at 2.0x based on the group’s reported EBITDA of €3.355 billion for the year ended Dec. 31, 2024.On March 25, the issuer launched a $500 million bond offering. IPT at the time of writing is 7.875%.

North America

Among upgrades, online car retailer Carvana’s issuer rating was upgraded on March 13 by S&P to B from B-. Additionally, the credit rating agency upgraded Carvana’s secured debt rating to B from B- and its unsecured debt rating to CCC+ from CCC. It also took a positive outlook on the potential for another upgrade within the next 12 months if the company’s operating performance continues to improve while leverage stays below 5x and free operating cash flow to debt remains above 5%. The credit rating agency said the rating upgrade reflects Carvana’s continued business growth while sustaining stronger EBITDA margins and improving credit metrics. Coverage of Carvana is HERE.

Regarding negative rating actions, Avis secured debt rating was downgraded to BB from BB+ and its unsecured debt rating was downgraded to B+ from BB- on Feb. 25 by S&P on higher vehicle costs due to lower residual values negatively impacting financial performance in 2024. Its outlook was revised to negative on the expectation that credit ratings will remain weak for the credit rating in 2025. Moody’s revised its outlook on Avis to negative from stable but affirmed its issue level and issuer ratings. The rating agency said recovery of margins and deleveraging of the balance sheet will take longer than previously expected given that it now expects the company’s accelerated fleet rotations to not be fully realized until late-2025. Coverage of Avis is HERE.

Ford Motor’s rating outlook was revised to negative from stable by S&P on Feb. 6, though its issuer rating was affirmed at BBB-. The credit rating agency said it expects EBITDA margins to remain below 8% through 2026 due to rising pricing pressures and sustained losses in its Model E segment. Coverage of Ford Motor is HERE.

Europe

There were numerous negative actions among auto suppliers in the past three months:

This month, French autoparts supplier Forvia was downgraded to BB- from BB to reflect the declining automotive production in Europe and North America as well as increasing restructuring and one-off costs. Restructuring costs amounted to €362 million in FY’24 compared to €171 million in FY’23, or €208 million and €170 million on a cash basis respectively. According to S&P, the U.S. tariffs could result in production disruptions or delayed cost pass-through to auto original equipment manufacturers. Coverage of Forvia is HERE.

In December, German autoparts supplier ZF was downgraded by Moody’s to Ba2 from Ba1 to reflect the ongoing cyclicality and structural pressures on volumes and margins in the company’s key automotive markets. According to Moody’s, the material efficiency measures including reducing its workforce in Germany gradually by 11,000-14,000 by the end of 2028 will help to stabilize credit metrics. Moody’s expects improved profitability and positive Moody’s adjusted free cash flows, after interest payments and dividends. Moreover, asset disposals to include the passive safety business ZF Lifetec could have a moderate de-leveraging effect. Coverage of ZF is HERE.

Also in December, Moody’s revised its outlook on German auto supplier Mahle to negative, while Benteler’s rating outlook was revised to stable from positive.

Schaffler was downgraded by Moody’s to Ba1 following the weak environment coupled with high transition cost to electrification for the manufacturer of precision products for mobility. This was after the group posted a 55% drop in recurring operating profit in the fourth quarter, which itself stems from negative developments in its industrial division and a weak contribution from the recently acquired Vitesco. Vitesco’s own sales in the fourth quarter were down 18% year over year. The name, which was already rated BB+ by S&P, saw its outlook revised to negative in February on the back of the release of the preliminary figures for 2024. In the Q4 earnings call, management said it expects net leverage by the end of 2025 to be close to the current level of 2.5x and believes that it will take a “few quarters” to return to the targeted range of 1.25x to 1.75x. See our earnings analysis HERE. Coverage of Schaffler is HERE.

S&P revised its outlook on Spanish supplier of automotive interiors Grupo Antolin B- rating to negative to reflect weak industry conditions and weak free operating cash flows, as calculated by S&P. The outlook also reflects higher than expected leverage and prolonged cash burn resulting in tight covenant leeway, with leverage covenant at 3.4x compared to the limit of 3.5x for the period ending September 30, 2024. Coverage of Grupo Antolin is HERE.

German automotive supplier Standard Profil was further downgraded in the triple C category by S&P and Moody’s after weak Q3’24 results and the fully drawn €30 million RCF due April this year amid a restructuring with a new money need of around €20 million, according to sources. Coverage of Standard Profil is HERE.

Lastly, S&P revised its outlook on Italian premium and luxury auto supplier Pasubio to negative, reflecting the weak automotive environment. Meanwhile,

Among OEMs, Stellantis was downgraded by S&P to BBB from BBB+ reflecting 2025 guidance of mid-single digit adjusted operating income, or AOI margins compared to 5.5% in 2024, implying limited profitability improvement. 2023 AOI margins were 12.8%. S&P expects that the price reductions in North America at the end of last year, customer affordability in North America and Europe will limit Stellantis’ ability to achieve both significant volume growth and margin expansion in these markets and additional earnings headwinds from U.S. tariffs on imports from Mexico and Canada. Coverage of Stellantis is HERE.

Aston Martin’s rating outlook was revised by Fitch to negative from stable following a larger-than-expected free cash flow shortfall. Fitch cites supply chain issues, subdued demand in China and liquidity risk from further turnaround delays. Coverage of Aston Martin is HERE.

Among positive actions, Renault’s BB+ rating outlook has been revised to positive following the successful execution of its “Renaulution” plan, which led to strong operational free cash flow over 2023 to 2024 with FY’24 generating €2.883 billion. The group’s operating margin between 2023 and 2024 averaged around 7.8%. Coverage of Renault is HERE.

In the auto leasing sub-segment, U.K. long-term vehicle leasing group Zenith was downgraded to CCC+ from B by S&P, reflecting the lower residual value profits caused by a decline in electric vehicle prices. Results for the quarter ended Sept. 30, 2024, point to a residual value loss per electric vehicle of £3,553. The share of electric vehicles being disposed of is increasing. The rating action also reflects elevated interest rates keeping performance weak in FY’25 and FY’26 ending March 31. Coverage of Zenith is HERE.

Rest of the World

Nissan was downgraded last month by Moody’s and Fitch into the high-yield rating as a result of low profitability and uncertainty surrounding its operational restructuring plan to reduce production capacity and headcount. Moreover, tariff risks to the company are high as according to Fitch, an estimated over 300,000 of the 629,000 units Nissan produced in Mexico in FY’24 were exported to the United States. S&P also downgraded Nissan to BB this month, citing a decline in competitiveness and earnings base in key markets. Coverage of Nissan is HERE.

The table below is a summary of recent rating actions: