Performance Study Profits in Overdrive

Despite looming diesel scandals, new competitors and the challenges of new technology, automakers were more profitable than ever in 2016.
The Geneva Car Show, held last March, had no shortage of visitors. Photo: Uli Deck/dpa

Hurdles abound for carmakers, from protectionism to digitalization. Yet their numbers have rarely looked so good.

Last week, Daimler Chief Executive Dieter Zetsche presented his shareholders with outstanding figures. Despite stiff competition and massive investments in cutting-edge technology, the Stuttgart-based manufacturer increased profits by 1.2 percent to €8.5 billion in the last fiscal year.

Daimler is just one example in the booming auto industry, according to a new study obtained by the Center of Automotive Management (CAM) at the Fachhochschule der Wirtschaft business school in Bergisch Gladbach near Cologne.

The world's 17 largest car companies generated a profit of €104 billion ($111 billion) in 2016, according to the report, which has Handelsblatt has obtained. That is €10 billion more than in the previous year, and the highest overall gain in history.

"Automotive manufacturers have profited from seven huge years and have also reduced their costs," CAM Director Stefan Bratzel told Handelsblatt, noting that the three most profitable companies – Toyota, Daimler and General Motors – accounted for 40 percent of the profits.

Sales also increased by 2.3 percent to 78.1 million vehicles. That too is a record.

Automotive manufacturers have profited from seven huge years and have also reduced their costs. Stefan Bratzel, Director at the Center of Automotive Management in Bergisch Gladbach

To establish a common metric of success for manufacturers, CAM created an index to incorporate both financial and market results. General Motors (GM) is the big winner in this year's ranking list. Despite continued losses in Europe and stagnant sales, GM managed to become one of the three most successful car companies in the world, earning the third-largest profit in the industry. The carmaker expects to post even higher earnings following the sale of Opel to French competitor PSA.

Toyota remains the undisputed industry leader. Although the Japanese manufacturer lost its title as the world's largest car company last year to Volkswagen and saw profits decline due to exchange rate fluctuations, it still makes as much as GM and VW combined, with a profit totaling €17 billion, mainly because of cost efficiency. Although Toyota slipped behind German premium manufacturers BMW and Daimler in terms of margins, the group is still making more profit per car sold than most other high-volume manufacturers.

"Many call it a bad year when we achieve a return of 7 to 8 percent," Toyota Vice President Didier Leroy said recently. "Other manufacturers can only dream of a year like that."

Shareholders also seem satisfied. With a market capitalization of €182 billion, Toyota is more valuable than all American automakers combined.

Passenger Car Sales

The Germans also score well in the CAM ranking. BMW and Daimler continue to report high margins. Volkswagen also appears to be recovering even though its profit margin remained below average at 3.3 percent. After losing billions in the wake of the Dieselgate emissions scandal, the Wolfsburg-based company was back in the black again in 2016. "Overcoming the diesel scandal continues to weigh down the balance sheet but not nearly as much as in the previous year," said study author Mr. Bratzel. 

He also warned manufacturers of being blinded by the good results. "Many could succumb to the temptation of relying solely on their current strengths," he said, focusing only on the profitable parts of the business and possibly missing out developments that could become important for the future.

Lukas Bay is an editor with Handelsblatt's companies and markets section. Contact the author: [email protected]