Fitch Ratings, a rating agency, has upgraded its Long-Term Issuer Default Ratings of Allison transmissions to BB+ from BB.
This upgraded rating indicates that the outlook of Allison Transmissions is stable, as expectations for earnings and FCF (free cash flow) look to remain strong, even if profit margins do not rise back to pre-pandemic levels in the next several years. Allison Transmissions currently dominates the commercial vehicle automatic transmission business, and is currently investing in electric vehicle (EV) technologies.
Allison Transmissions continues to lead the commercial vehicle segment in North America, as a majority of class 6 and 7 commercial trucks, as well as class 8 straight trucks and school buses, continue to use its transmissions. However, outside of this market, Allison sees low, but growing usage in commercial vehicles.
Electric vehicles have no need for automatic transmissions, so Allison’s long term picture may look fragile. However, to combat this, Allison has been investing in EV propulsion systems for commercial vehicles, and has already been awarded a number of EV-related supply agreements with manufacturers of commercial vehicles, off-highway equipment and military vehicles.
As far as FCF goes, Allison has a proven track, and has posted positive numbers every year since going public in 2012, including the pandemic dark days. Despite a prediction for a slight drop in FCF margin due to inflationary measures, Finch expects FCF to grow for several years.
For GM fans of Allison transmissions, this is great news, as a positive outlook for Allison reflects a positive outlook for further use in GM products. Of course, it’s worth noting that Allison transmissions are now only used in Silverado Medium Duty (MD) trucks, while the current line-up of Silverado HD trucks use an Allison-branded 10-speed transmission. Despite the naming scheme, these two transmissions have nothing in relation to each other.