First Corona, then a lack of parts: The auto industry has had to accept deep cuts in recent years. However, they had one consolation in the crisis, because the margins per car were record-breaking for some companies. A study by the consulting firm Ernst & Young (EY) predicts that this will soon be over. “The days of dream margins will soon be over,” said EY industry consultant Peter Fuss, based on a published analysis of key figures from the world’s 16 largest car companies.
In times of scarce components and chips, manufacturers could afford to prioritize expensive models in production and remove low-margin versions from the range entirely. For example, the VW Golf (test) has not been available with the 66 kW base petrol engine for a year. The starting price for Germany’s best-selling car is now almost 30,000 euros.
Good view – at first sight
With the increasing availability of chips and other components, the number of cars produced will increase again. This means that more new cars are in circulation again and the sales of the group are also increasing. For consumers, a larger range means the chance for discounts, which have hardly been there in the past. Overall, business would then get back on track as usual.
But that is exactly what cannot be foreseen. According to the study, car manufacturers will have to adjust to a more difficult business environment in the future despite high sales. With the energy crisis and a recession looming around the world, the prospects for the car companies continue to cloud over. Expensive energy hits them twice: on the one hand, it makes production more expensive, on the other hand, it reduces customers’ willingness to spend. In addition, there are enormously increased costs for raw materials, which car manufacturers pass on to the end customer wherever the market allows. Since there is no sign of an easing in material, logistics and energy costs either, it seems unlikely that prices for new cars will fall drastically in the foreseeable future.
slump in the Chinese market
The prospects for an economic recovery are poor, and not only in Europe. According to the EY study, sales in the Chinese market for the big players in the industry fell by 24 percent in the second quarter of 2022. BMW, Volkswagen and Mercedes-Benz together had to accept a drop of 19 percent. Things are apparently looking better worldwide: From April to June 2022, car manufacturers achieved significantly higher sales despite lower sales figures compared to the same period last year. However, the average profit margin, i.e. the share of operating profit in sales, fell from 9.8 to 7.9 percent. The industry was thus approaching the numbers before the pandemic again. Among the German manufacturers, it was primarily Volkswagen and BMW that lost profitability. Mercedes-Benz was able to roughly maintain the value from the same quarter of the previous year.
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