Car companies continue to grow in the third quarter

Despite increasing economic headwinds and an increasing price war, the world’s largest car companies continued to grow in the third quarter: Sales of the top 16 car manufacturers climbed by 11 percent to a good 504 billion euros, reaching a new high. The total profit even rose by 35 percent to almost 39 billion euros – also a new record.

An important reason for the significant sales and profit growth is the weak yen, which helped the Japanese car companies to increase profits by 103 percent. The profit development was much more subdued among German car manufacturers, whose operating profit only rose by seven percent. The US car companies even recorded a decline in profits of 18 percent.

When it came to profit margins, a German car company was still ahead: Mercedes-Benz led the ranking of the most profitable car companies with a margin of 13.0 percent, ahead of Toyota (12.6 percent) and BMW (11.3 percent). Stellantis and Renault did not release third-quarter earnings figures.

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 company EY prepares on a quarterly basis.

“Things are no longer going well for the global auto industry,” says Constantin M. Gall, Managing Partner and Head of Mobility at EY for the Europe West region. “The sales and profit records achieved in the third quarter are due, on the one hand, to the weak yen, which is currently helping Japanese manufacturers enormously. But above all, they are records from the past. The coming year will be significantly more challenging. Because the impacts are getting closer: demand for new cars is weakening, the ramp-up of electromobility is stalling, and price pressure is increasing.” Problems with the introduction of new models will impact profitability because there is a lack of sales and development costs are higher than planned.

According to Gall, more and more companies are reacting to these problems with discount campaigns, favorable financing offers and special models: “In the fight for better utilization and market share, more and more companies are resorting to the well-known means – but these often come at the expense of the margin.”

Many companies now want to counteract this with cost-cutting programs, observes Gall: “Now things are back in the red, because many car companies suffer from excessive internal bureaucracy and processes that are too complex – which consumes large sums of money and impairs competitiveness.” Especially since the really big challenges are still to come says Gall: “The switch to electromobility will be a crucial test for the industry. However, there are currently increasing concerns that customers will not follow the ambitious transformation of mobility towards electromobility. The market is flooded with new electric cars, but customers are more cautious than expected.”

Average margin at a high level – still

In the third quarter, profitability was still at a high level overall – compared to the same period last year, the average margin even climbed from 7.2 to 8.6 percent. The majority of companies were able to increase their profitability – Tesla, however, recorded the largest decline: The e-car group achieved a margin of 7.6 percent – after 17.2 percent in the previous year.

Although new car sales rose by 5.5 percent to 16.5 million cars, growth was twice as strong at 11 percent in the second quarter. In addition, the gap to pre-crisis levels remains large: In the third quarter of 2019, companies’ car sales were 18.0 million vehicles; a year earlier, 18.5 million new cars were delivered to customers – two million more than currently.

Declining car sales in China

While new car sales by the companies examined rose by 14 percent in Europe and even by 17 percent in the USA in the third quarter, things fell sharply in China: sales in the Middle Kingdom fell by 11 percent. German car manufacturers recorded a slightly smaller decline there, at minus six percent.

“The situation in China remains difficult,” says Gall. “Domestic manufacturers are gaining market share, and there is also a price war that can lead to a brutal selection process,” says Gall. However, China remains a key market for German car manufacturers: in the third quarter, China’s share of the three German car companies’ global new car sales was at least 36 percent.