NEW YORK — In its analysis of how 2010 is likely to unfold, Fitch Ratings suggested that credit quality for domestic vehicle suppliers should improve.

Fitch also suggested in its analysis that global auto sales likely bottomed out last year, but noted that the auto industry's "weakened condition" should become healthier this year.

Officials said there should be a strengthening in U.S. auto suppliers' financial profiles because of higher vehicle volumes, reduced costs and improved capacity utilization.

"Credit quality had already begun to improve in late 2009 given access to credit and the capital markets, adequate liquidity and debt maturity extensions," Fitch noted.

However officials indicated that suppliers in Europe would continue to see challenging credit circumstances as this year goes along. Fitch believes the overall credit quality of the European automotive supply industry will likely remain under pressure in 2010.

Continuing on, Fitch executives explained that "credit profiles for autos remain mixed, with U.S. manufacturers still the most competitively disadvantaged and European manufacturers facing a difficult home market.

"While the auto industry's performance will improve in 2010, the recession did not lead to the material cut in assembly capacity and industry consolidation that was anticipated at the start of the auto industry and financial crises, notably because of social and political issues," they continued.

"This missed opportunity will remain a major constraint to higher industry profitability for the foreseeable future," they added.

Fitch also noted that while the sales conditions in domestic and Japanese markets should recover slightly this year, executives didn't expect a significant turnaround in European sales because of what they said was "result of a payback effect from incentive schemes in that region being phased out."

Officials went on to mention that "sales in Europe will be slowed by high unemployment, weak consumer confidence, and the lost wealth effect from lower housing prices especially in some countries including the United Kingdom and Spain.

"For companies rated by Fitch, margins should improve given cost cutting and restructuring; however, free cash flow is expected to be significantly less than 2009," Fitch officials concluded.