Automakers reach for credit lines as crisis bites, says GlobalData

The rapid spread of the coronavirus (COVID-19) has caught most of the auto industry on the back foot and companies are now looking to open up new credit lines as a response.

Mike Vousden, Automotive Analyst at GlobalData, a leading data and analytics company, offers his views:

“With potential customers suddenly stuck in lockdown all around the world, some original equipment manufacturers (OEMs) may see months without meaningful sales volume and suffer a subsequent hit to revenue and profitability. In addition, automakers are bearing the financial burden of supporting furloughed workforces and, in some cases, repurposing factories and supply chains to provide much needed ventilators and medical equipment.

“These extreme circumstances have pushed some automakers to access sizeable credit facilities to shore up their financial positions. Most recently, Japanese giant Toyota announced it was seeking a JPY1 trillion ($9 billion) line of credit from Sumitomo Mitsui Banking Corp. and MUFG Bank. Of all the major Japanese OEMs, Toyota is the largest and has the best credit rating – Moody’s Investors Service previously held it at an A1 grade – but, with the virus placing incredible pressure on the auto industry’s earnings, it has since dropped Toyota’s grade to Aa3.

“The fact that these huge business enterprises are seeking to open new credit lines at this stage in the crisis adds to its gravity and a growing sense that even when recovery arrives, the financial consequences will be felt for some time to come.”

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