Car manufacturers do not experience a crisis

Car manufacturers do not experience a crisis

The global automotive industry got off to a strong start in the new year: Profits rose to a new record level, and global car sales increased by 15 percent, but at 16.9 million vehicles they were still nine percent lower than in the first quarter of 2019. Despite an increase of ten percent, cumulative sales were still one percent below the level of the first quarter of 2019.

The German car companies performed particularly well, reporting significantly better results in terms of sales, profits and margins than the majority of their competitors. With sales of 62.4 billion euros, Volkswagen was the car company with the highest sales in the world, while Daimler, with an operating profit of 5.7 billion euros, not only reported the highest profit of all the companies examined, but was also the most profitable group with a margin of 14 percent.

Boom in China

Thanks to their strong presence in China, the German companies were able to benefit particularly well from the growth of the new car market there: passenger car sales from Volkswagen, BMW and Daimler in the Middle Kingdom rose by 66 percent, while an increase of 21 percent was recorded in the USA and sales in Western Europe were roughly at the same level as the previous year (minus one percent). In total, the German car companies achieved a global sales increase of 21 percent - for comparison: the Japanese car manufacturers achieved sales growth of 15 percent, the US companies achieved twelve percent and the South Korean manufacturers eleven percent.

With a margin of 14 percent, Daimler takes first place in the ranking of the most profitable car companies, while BMW is in third place behind General Motors with 11.3 percent. Volkswagen achieved sixth place with 7.7 percent. These are the results of an analysis of the financial indicators of the 16 largest car companies in the world, which the auditing and consulting organization EY prepares on a quarterly basis.

“Many car companies had already introduced cost-cutting measures before COVID-19, which were massively tightened in view of the pandemic,” says Gerhard Schwartz, Head of Industrial Products at EY Austria. “The first quarter results show that some companies have actually made progress in adjusting fixed costs.” It is also noteworthy, however, that the ramp-up of electromobility and the significant growth in sales of electric cars and plug-in hybrids do not appear to have had a noticeably negative impact on the margin: "Many car companies are consistently and intensively aligning their production network with electromobility and are investing heavily in the conversion and new construction of production facilities and in battery factories. Research, development and production are consistently geared towards electromobility. This costs a lot of money. This makes the good profit figures that many car manufacturers have all the more remarkable can currently demonstrate.”

Supply chain challenge

The global chip shortage is hardly noticeable in the overall good figures for the first quarter. Schwartz expects that to change in the second quarter: “The supply bottlenecks for semiconductors are leading to considerable restrictions in production, and several million vehicles will probably not be able to be built over the course of this year.” The new car market will therefore not recover as strongly as would be possible given the significantly increased demand. However, Schwartz does not expect that the situation will lead to significant losses in profits: "The car companies are reacting, among other things, by focusing on models with high margins. And the willingness to give discounts is likely to continue to decline. If we manage to keep the price level high, the loss of profits will therefore be limited."

The Chinese sales market continued to gain in importance for German car companies in the first quarter. Overall, four out of ten new cars from Volkswagen, BMW and Daimler were handed over to a Chinese customer (40.6 percent) - in 2020, China's share of German companies' total sales was 39.4 percent, and in 2019 it was 35.3 percent. China is most important for Volkswagen (44 percent), followed by BMW (36 percent) and Daimler (33 percent).

“The boom in China continues and means that this market is becoming increasingly important for the global auto industry, while at the same time little growth seems possible in Europe,” says Schwartz. "The music is increasingly playing in China, also when it comes to the market launch of new technologies and business models and the emergence of new providers. This makes it all the more important for car companies to show a strong presence in this important market."