Car makers set to gear up for more growth

Stronger-than-expected demand from China is likely to boost sales growth for car manufacturers to 4.8 percent in 2014, keeping the outlook for the global sector stable over the next 12 to 18 months, Moody's Investors Service said in a report on Wednesday.

"We anticipate a mild increase in sales growth to 4.8 percent for 2014 from our newly revised forecast of 3.2 percent for 2013, mainly because of higher-than-expected demand in China," said Falk Frey, Moody's senior vice-president and author of the report.

"As Chinese car market growth continues to be above GDP growth rates, we have revised upward our forecast for light vehicle demand growth to 10 percent from our January expectation of 7 percent growth for both 2013 and 2014."

European light vehicle sales expectations are unchanged, although individual country performance varied.

Moody's continues to forecast that European light vehicles sales will decline 5 percent year-on-year in 2013, as lower expectations for France and Italy are offset by stronger-than-expected sales volumes in the UK.

According to the report, western European light vehicle demand will have reached a trough in 2013 and will rebound by 3 percent in 2014, which is lower than Moody's previous forecast of a 5 perecnt increase in demand. However, Moody's does not anticipate this signaling an upward trend.

Outside Europe, Moody's notes rising risks for light vehicle demand, especially in Brazil and Russia.

Light vehicle demand in Brazil is losing momentum in the face of rising interest rates, high inflation and an increasing indebtedness of private households. European Original Equipment Manufacturers (OEMs) need these markets in order to mitigate losses in Western Europe.

Manufacturers' profit margins continue to diverge. The margins of Renault, Peugeot, and Fiat will remain under pressure because of overcapacity and low demand in Europe. This will also continue to weigh on German OEMs' margins, although their margins remain more solid.

Japanese manufacturers' margins will continue to recover from their lows after the 2011 earthquake and tsunami, supported by a weakening yen that should also fuel market share gains.

Moody's expects US manufacturers will retain similar margins in the next 12-18 months but tougher competition, slower US growth and continued, albeit reduced, losses in Europe may cause them to erode slightly.