Morgan Stanley analysts warn that despite hopes for increased affordability, lower interest rates may not provide an immediate boost to the European auto sector. The report highlights weak underlying demand and price deflation as persistent challenges.
European auto stocks may not experience an immediate boost following central bank interest rate cuts, despite hopes for increased affordability in new vehicles, Morgan Stanley pointed out in a note to clients on Wednesday.
As a result, the analysts remain cautious about European auto manufacturers and see margin risks looming over the sector. The report also highlights that lower rates tend to coincide with decreased average selling prices as OEMs move to defend their market share. "Lower bond yields, although helpful for affordability, can be the consequence of lower aggregate demand and are not always associated with tighter spreads," Morgan Stanley said, while also pointing out that"more bullish would be signs of reflation in China."yields drop rapidly.
Despite the pressure on OEMs, Morgan Stanley's analysis also touched on the role of inflation. The auto sector had previously benefited from rising prices, but"recent data highlight that the fundamental backdrop for automotive pricing is now deteriorating," with new car price inflation in the U.S. turning negative and dealer incentives rising.
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