Steffen Briel
Senior Portfolio Manager Multi Asset Credit; Investment Grade
Portfolio Management Credit
German automakers have not yet been able to stabilize their profitability. For now, most are offsetting rising business risks with robust balance sheets—but they must use this time to make structural adjustments. The automotive sector is thus increasingly becoming a credit story: cash flow, balance sheet quality, and market access are coming to the fore. In our view, the risk premiums are attractive only at first glance. We therefore remain underweight and selective.
Same Problems—Same Causes
“The latest news from the automotive industry is alarming.” That was the message in our Credit Pulse report, “Automotive Sector: Challenging Times, ” published in October 2024. At that time, leading OEMs—particularly those based in Germany—had been forced to revise their forecasts for the fiscal year downward.
Two years later, a sense of déjà vu sets in, because the causes are the same: a weak Chinese economy, excessive costs, and new competition. On top of that, U.S. tariffs have been in place since 2025.
Unlike in 2024, when there was still talk of a return to normalcy following the record profits of the post-pandemic years, German OEMs have so far failed to stabilize their profitability. From a lender’s perspective, however, focusing solely on profitability is not enough: In some cases, profitability is weighed down by non-cash impairments—a consequence of the restructuring programs that have been implemented and announced. Furthermore, thanks to their robust financial services divisions, most manufacturers continue to have positive net liquidity and maintain consistently high liquidity reserves.
OEM Profitability
Source: Bloomberg, trailing 12-month EBIT margin, company data, own presentation, period: 2009 through June 30, 2026.
From Earnings Growth to a Credit Story
However, balance sheets—which remain solid in most cases—are coming under pressure due to persistently weak operating performance and the industry’s long-term structural challenges. In our view, regulation, competition, and technological change are significantly increasing business risk in the automotive sector. For now, most manufacturers can still offset this risk with their strong balance sheets. However, OEMs should use the leeway this provides to make the necessary adjustments rather than resting on their laurels. Without structural improvements to their competitive position, operating performance will increasingly result in weaker balance sheets and, consequently, lower credit quality.
As a result, the automotive sector is increasingly becoming a credit story: rather than earnings growth and opportunities, cash flow and balance sheet quality are taking center stage. Symbolically, Volkswagen was removed from the Euro Stoxx 50 on September 21, 2026.
Automotive Sector: Risk Premiums Are Attractive Only at First Glance
Source: Bloomberg, Automotive (Bloomberg Euro-Aggregate Automotive Index), Industrial BBB (Bloomberg Euro-Aggregate: Industrials Baa Index), own calculations; as of September 18, 2026.
Currently, the spread of the Automotive Index is about 15 basis points above that of the Corporate Non-Financials Index. In the current environment of historically tight spreads, this level appears attractive. A closer look, however, reveals that the risk premium relative to the overall market has hardly changed over the past two years; in absolute terms, it has settled at a higher level since 2024. Furthermore, this analysis overlooks the increasing deterioration in credit quality within the sector. Given the ongoing refinancing needs and the negative operating trend, we remain underweight in the sector and are selectively focusing on individual OEMs.
Risks
Price losses due to increases in yields and/or higher risk premiums are possible. A total loss cannot be ruled out either.
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