The global automotive industry is weakening, with German carmakers experiencing a continued decline in earnings during the first half of the year. This is according to a study by auditing and consulting firm EY released on Friday.
German car giants Volkswagen, BMW and Mercedes-Benz collectively earned €25.9-billion in operating profit (EBIT) from January to June. This marked an 18% decrease compared to the same period last year.
EY evaluated the financial figures of the 16 largest car manufacturers worldwide for the analysis.
EBIT were 7.8% lower than previous year
Although the sales of all groups rose by 3.7% to over €1-trillion in the first half of the year, earnings before interest and taxes (EBIT) were 7.8% lower than in the previous year at €80.4-billion.
On the other hand, carmakers from Japan were particularly successful. They saw a profit increase of around 37.1% and 14.2% growth in sales.
This was due to the ongoing depreciation of the yen. It makes Japanese products cheaper abroad and leads to exchange rate gains.
Constantin Gall, a market observer at EY, explained the effects. He said that the profit growth of Japanese manufacturers due to currency effects masked other things. It masked the more challenging profit situation in the automotive industry.
Gall predicted that manufacturers would face increasing profit pressure. This was due to high investments in electromobility, component delivery issues. Also problematic model changes, and discount campaigns, resulting in widespread cost-cutting measures.
Optimising internal structures
Amidst limited influence over regulatory conditions, Gall emphasised the importance of optimising internal structures. Reducing costs, and strategically investing in areas that highlight the brand essence. And also value proposition of the manufacturers.
The first half of the year saw manufacturers’ profitability come under pressure. An average EBIT margin, which represents operating profit as a percentage of revenue, decreased by one percentage point to 8.0%.
South Korean car manufacturer Kia emerged as the most profitable carmaker, boasting a margin of 13.1%. They were followed by Mercedes (10.9%) and BMW (10.8%). Both saw their margins decrease compared to the previous year.
US electric carmaker Tesla also experienced a significant drop in its margin, falling from 10.5% to 5.9%.
- dpa
In 10 years’ time, the German automakers’ profits will be way down, and Chinese and Japanese profits way up. Same as the camera industry from 50’s to 70′, by the 70’s the German camera market was tiny.
I agree with @Kuhn. It’s more to do with value for money in the post-pandemic environment. The high cost of living crisis ravaging both developed and emerging markets has resulted in cutbacks on luxury mobility. The cars which now emanate from China and Japan are not only budget cars but truly luxury vehicles priced appropriately.