Global Auto Industry Is Weakening As German Auto Giants Are Recording Losses

The global auto industry is weakening, with German carmakers recording continued earnings declines during the first half of the year, according to a study by auditing and consulting firm EY.

German car giants Volkswagen, BMW and Mercedes-Benz collectively earned 25.9 billion euros in operating profit (EBIT) from January to June, down 18 percent compared to the same period last year.

EY evaluated the financial figures of 16 of the world’s largest car manufacturers for the analysis.

Although sales of all groups increased by 3.7% in the first half of the year, earnings before interest and taxes (EBIT) were 7.8% lower than the previous year at 80.4 billion euros.

On the other hand, car manufacturers from Japan were particularly successful, with an increase in profits of around 37.1% and sales growth of 14.2%. This was due to the constant depreciation of the yen, which makes Japanese products cheaper abroad.

Constantin Gall, a market watcher at EY, said that the rise in Japanese manufacturers’ profits due to exchange rate effects masked a more challenging profit situation in the automotive industry.

Gall predicted that manufacturers will face increasing pressure on profits due to heavy investments in electromobility, problems with the supply of components, problematic model changes and discounting campaigns, which will result in widespread cost-cutting measures.

Amid the limited impact on regulatory conditions, Gall emphasized the importance of optimizing internal structures, reducing costs and strategically investing in areas that highlight the essence of the brand and the value of the manufacturer’s offering.

In the first half of the year, the profitability of producers was under pressure. The average EBIT margin, which represents operating profit as a percentage of revenue, decreased by one percentage point to 8.0%.

South Korean automaker Kia emerged as the most profitable automaker, with a margin of 13.1%. They are followed by Mercedes (10.9%) and BMW (10.8%), whose margins fell compared to the previous year.

American electric car maker Tesla also experienced a significant decline in its margin, which fell from 10.5% to 5.9%.

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