Memo to corporate bond buyers: The auto parts industry is back.
That’s the news from Fitch Ratings, a global credit rating agency that provides investment advice to purchasers of corporate securities. U.S.-based auto suppliers were hit especially hard during the recession of 2008 and 2009, with hundreds of liquidations and bankruptcies in 2009 alone.
According to Fitch Ratings, however, U.S. government standards requiring a shift to high mileage, low emissions vehicles are driving a surge of investment in new auto technology. Supplier firms are positioned to benefit with new sales and market opportunities.
Fitch Ratings expects the new standards to drive significant technological change in the auto industry‚. Auto manufacturers and suppliers are already expending significant funds on research and development to prepare for the tighter standards.
The Fitch analysis echoes key findings of an earlier study, “Supplying Ingenuity: U.S. Suppliers of Clean, Fuel-Efficient Vehicle Technologies,” published in August, 2011 by the Natural Resources Defense Council, the National Wildlife Federation and the United Auto Workers. “Supplying Ingenuity” estimated that over 150,000 U.S. auto jobs are linked to the supply of engines, powertrains and other components of clean, fuel-efficient vehicles.
The Fitch report, “The New U.S. Auto Fuel Economy and Emissions Standards,” was authored by analysts Stephen Brown, Chad Walker, and Craig Fraser. They present a useful plain-English summary of how the new standards were derived and how they will work, with tables that show required improvements from all classes and sizes of vehicles.
While auto manufacturers have ultimate responsibility for meeting the federal standards, say Brown, Walker and Fraser, it’s auto suppliers who will supply the technology needed to boost mileage and cut emissions. Similar to other observers, Fitch projects that while hybrids and electric vehicles will gradually increase their market share, the vast majority of vehicles sold in the next two decades will still be powered by internal combustion engines.
That translates, the analysts say, into business opportunities for companies that have available know-how to improve the efficiency of internal combustion engines ‚Äì and for those that can pave the way for greater market penetration of electric vehicles.
Fitch expects the greatest benefits to be realized by automotive suppliers‚ [T]he standards will drive increased business to those suppliers with the technical capabilities necessary to help manufacturers meet the more stringent targets‚ Fitch expects the greatest benefits of the new standards to accrue to suppliers in three primary areas: powertrains, drivetrains and electrification.
The supplier companies that stand to benefit, says Fitch, are based in the U.S., Europe and Asia. Almost all have design, engineering and production facilities within the United States, to meet demand for North American vehicle manufacturers. The investment opportunities Fitch is identifying for its clients ‚Äì buyers of corporate bonds ‚Äì are also likely to become job opportunities for U.S. workers, as auto companies ramp up purchases of components which can boost mileage while offering equal or superior engine performance.
Here is Fitch’s rundown of key fuel-saving, emissions lowering technologies, and the companies that are likely to be selling these products to auto manufacturers.
|Turbocharging:Uses an engine’s exhaust gas to turn turbines which force more air intake, yielding greater motive power.||Borg Warner, Honeywell, Mitsubishi, IHI, Continental|
|Variable Valve Timing (VVT):Allows timing of opening and closing of valves to vary with engine speed, maximizing performance for power and efficiency||BorgWarner, Denso, Schaeffler Technologies|
|Automated manual transmissions:Retains gearing architecture of manual transmissions, with clutch and gear changes controlled by a computer. Combines lower weight and improved performance of a manual transmission with convenience of an automatic.||Borg Warner, Getrag, ZF Friedrichshafen|
|Continually Variable Transmissions (CVT):Uses belts and pulleys to provide an infinite number of gear rations, allowing engines to operate at its optimum speed range for longer periods.||ZF and auto manufacturers|
|Multiple gear automatic transmissions:Seven, eight and nine speed transmissions are replacing 5-speed versions. Like CVTs, more speeds enable the engine to operate a maximum efficiency for longer periods of time.||BorgWarner, ZF, Aisin Seiki, Jatco, Valeo|
|Electric vehicle components:Outside of battery production, Fitch expects opportunities for companies provide key components, including connectors, wire harnesses and electronic modules.||Delphi, Lear, TE Connectivity, Molex|
Roger Kerson is a Michigan-based media consultant for labor unions and environmental organizations. He was formerly the director of public relations at the United Auto Workers.