Loans to the auto sector will likely represent only mild trouble in an otherwise benign credit environment for North American banks and not result in any bank downgrades, says Standard & Poor’s Ratings Services in a report released Friday.

Continuing erosion in market share of the large U.S. automakers will have repercussions for large auto manufacturers and a wide circle of parts suppliers, which can expect to be squeezed hard on pricing and could see a drop in order volumes, the report says. The dealers who specialize in U.S. brands could be hurt as well.

However, “a relatively small portion of banks’ total credit exposures are to auto-related borrowers — parts suppliers and dealers as well as the large auto manufacturers.”

“Exposures tend to be less than 3% for the largest banks in the U.S. and Canada including Citigroup Inc., J.P. Morgan Chase & Co., Bank of America Corp., Bank of Nova Scotia, Bank of Montreal, Royal Bank of Canada, Toronto-Dominion Bank, and Canadian Imperial Bank of Commerce,” says Standard & Poor’s credit analyst Tanya Azarchs.

Further reverberations could be felt in the entire economy, including the consumer and retailing sectors. “This is especially true in Canada, where the auto sector represents more than 6% of GDP, according to Statistics Canada, as opposed to only 1.1% in the U.S.,” the report notes. “That effect is difficult to quantify and will depend partly on the degree to which foreign cars sold in North America are manufactured there.”

“One noteworthy fact, however, is that for the large banks active in capital markets, the Big Three automakers (including the captive finance companies and conduits) tend to be among the largest single name credit exposures, and the amounts can be very large indeed,” S&P says.

“Luckily, much of the exposure tends to be in the form of unfunded loan commitments, which may not be drawn down, and in liquidity facilities provided to well-collateralized asset-backed commercial paper conduits, whose receivables (typically consumer loans) would not necessarily be correlated to the fortunes of the sponsoring auto maker,” Azarchs said.