General Motors Financial and Toyota Motor Credit are testing investor appetite for auto credits on Tuesday amid a shortage of semiconductors that is delaying car production for many makers.
Carmakers canceled orders for chips that power entertainment systems, information displays and driver assist systems during the height of the pandemic last year when it became clear that demand for new cars would decline due to a global recession. Now that car demand is picking up as the economy rebounds, manufacturers are finding that chipmakers are backed up fulfilling orders for personal electronic devices that have boomed in sales amid stay-at-home orders.
The industry lost 1.3 million units of global light vehicle production due to the shortage of chips in the first quarter, according to a report from IHS. Specifically, General Motors announced last month it will idle midsize pickup plant in Missouri and extend the shutdown at its Lansing Grand River Assembly into April, according to a memo sent to employees.
Despite all this disruption in the industry, it has yet to impact auto sector spreads. Average automotive spreads continued to grind tighter to 76bp over Treasuries on Monday, just 9bp away from the post-financial crisis low of 67bp over, according to ICE BofA data.
General Motors is out with three and seven-year fixed-rate tranches, which were guided to T+75bp and T+110bp area (+/- 2bp) in from initial price thoughts set in the area of 95bp and 135bp over Treasuries, respectively. The financial unit is also marketing a three-year floater that will be its first to reference the secured overnight financing rate, according to IFR data.
Spreads on the fixed-rate tranches look to land wide of where GM was able to price similar US$1.25bn three-year and US$900m seven-year notes in August last year at 155bp and 225bp over Treasuries. Since then, the 1.7% 2023s and 2.7% 2027s have tightened into G spreads of around 62bp and 102bp, according to MarketAxess data.
GM is expected to take a hit to earnings in the first half of the year due to the chip shortage, but is expected to make up for it in the second half, according to a note from CreditSights. GM’s most recent fiscal-year 2021 adjusted EBIT guidance was reduced to US$10bn-US$11bn vs. US$12bn earlier because of a US$1.5bn-US$2bn headwind from the semiconductor shortage, according to the report.
Meanwhile, Toyota is more insulated from the impacts of the chip shortage.
Following the Fukushima nuclear disaster back in 2011 Toyota recognized a need to stockpile these chips and has proven more resilient to the current shortage, according to a Reuters report. While other manufacturers are cutting production, Toyota raised its vehicle output for the fiscal year ending in March and jacked up its full-year earnings forecast by 54%.
Toyota is marketing two-year and seven-year fixed-rate tranches at initial price thoughts in the area of Treasuries plus 45bp and 75bp. At guidance spreads tightened by 15bp to T+30bp and T+60bp (+/- 2bp). The lender is also offering a two-year SOFR floater.
Toyota is active so far this year having already raised US$5.75bn in two multi-tranche trips to the market, according to IFR data. Spreads on Tuesday's deal look to offer some concession over its secondary, where its 0.5% August 2023s were last trading at around a G spread of 20bp, according to MarektAxess data.
Bookrunners on the GM trade include Credit Agricole, Citigroup, JP Morgan, Mizuho, Sumitomo Mitsui Banking Corp and Wells Fargo. Meanwhile, Barclays, JP Morgan, Mizuho, Mitsubishi UFJ Financial Group and Société Générale are leading the Toyota trade.