Is a financial storm rehearsing? European auto debt CDS skyrockets

The automotive bond market has been "bloodied," with Volkswagen and Aston Martin at the forefront.

According to media reports on April 8, the 25% punitive tariffs imposed by the Trump administration on European cars have plunged the European automotive industry bond market into panic. Bonds issued by Aston Martin last year fell to a historic low on Friday and continued to decline on Monday, with one bond plummeting over 9% since Friday, dropping to around 82 pence.

Meanwhile, in the credit default swap (CDS) market, the cost of default insurance for Volkswagen's five-year bonds surged by 30 basis points to 154 basis points between Friday and Monday, reaching the highest level since the COVID-19 pandemic. Although Volkswagen is one of the stronger performers in the industry, investors have increased their bets that the German automaker will be unable to repay its debts. On Tuesday, the price of Volkswagen's five-year CDS slightly retreated, falling nearly 5 basis points.

Gianmarco Migliavacca, a senior credit analyst at Neuberger Berman, candidly stated:

This is a continuation of last week's bloodbath... This will hurt the vast majority of automakers.

Loss-making luxury brand: Aston Martin faces a double blow

As a loss-making company, Aston Martin is particularly vulnerable to the impact of Trump's tariffs, as the company does not manufacture cars in the U.S., while the U.S. market accounts for 37% of its annual revenue. Media reports suggest that U.S. tariffs are expected to lead to a gross profit loss of up to £30 million.

Even more concerning is that Aston Martin had hoped to offset losses from slowing sales in Asia through growth in the U.S. market, but the increasingly bleak economic outlook in the U.S. has shattered that hope.

The company currently carries £1.16 billion in double-digit interest rate debt, with investors demanding high compensation to hold its bonds.

The group recently announced plans to raise over £125 million by selling its minority stake in an F1 team and securing additional investment from Chairman Lawrence Stroll.

Supply chain crisis intensifies: Auto parts suppliers face tougher challenges

The sell-off across the entire European automotive supply chain continues to escalate. The credit spreads of automotive suppliers such as France's Forvia and Germany's ZF Friedrichshafen have also widened due to tariff panic.

Analysts indicate that auto parts suppliers may be more severely impacted by the tariffs due to their lower profit margins, especially after U.S. officials revealed last week that a broader range of auto parts would be subject to a 25% tariff starting May 3.

Olivier Durand, CFO of Forvia, stated last month: "Imposing a 25% tariff on a large volume of purchases in the industry will automatically have a very significant impact." The company supplies parts to Stellantis and Tesla It is worth noting that the five-year CDS price of Stellantis has risen by 40 basis points since early April, from 170 basis points to about 210 basis points