Citigroup is out with a bearish note for the entire auto sector.Quick summary:
Quake damage and disruption underestimated — We have turned bearish on the auto sector, lowering our ratings across our coverage. Although sector share prices have fallen an average of 11% in the initial selloff following the March 11 earthquake, we do not think the fall in earnings and slowness of the recovery have been fully priced in yet. While some investors may be tempted to position for a recovery in H2 and out, the full extent of damage to the supply chain and production disruption from the power outages is being underestimated by the market, and we would avoid the sector as things stand.
Protracted impact from eastern Japan earthquake — Differences from previous disasters include
damage over a wide area to auto plants and to materials makers that supply vital inputs, and the prolonged impact of this.
As for specific:
New ratings and future re-entry points — We now rate all major automakers Sell, with Holds on Suzuki, Isuzu, and Hino (no Buys). We may see a supply chain recovery in autumn, so re-entry points could be found from around the end of June, when we may have more clarity on Q1 results and the pace of the production ramp- up. In our pessimistic scenario, re-entry points may slip to end-September.
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