Rapid decline in the profits of automobile manufacturers, as shown in new research
In a stark assessment, EY automotive expert Constantin Gall has warned that the established Western automotive industry is facing a deep and structural crisis due to dwindling profits. According to Gall, the operating profit (EBIT) of the 19 largest automakers nearly halved, down 49.2 percent, from January to June 2023 compared to the same period last year.
The revenue remained stagnant for these automakers in the first half of 2023, a clear indication of the industry's struggles. Gall believes that automakers need to shed their old baggage, reduce their large portfolios, and focus on clearly defined customer segments and a competitive model range.
Gall's study suggests that Asian automakers are outperforming German companies, but the specific details about the performance of Asian automakers compared to German companies were not provided in the study. However, consumers in China are increasingly favoring domestic brands, a trend that could further impact the Western automakers.
The weakness in the automotive industry is predicted to continue, with issues such as recalls, supply chain disruptions, fierce price competition, and high transformation and restructuring costs causing significant problems. Electric vehicle sales were much lower than expected, another challenge that the industry is grappling with.
Gall stated that it's crucial for automakers to make tough decisions. He cited a sluggish economy, unstable geopolitical situation, and uncertain trade policies as reasons for the industry's continued struggle. The operating profit stood at 42.8 billion euros in the first half of 2023, compared to 84.3 billion euros in the same period in 2022.
The German automotive manufacturers most at risk of existential questions in the medium term include major Western automakers who are facing a deep structural crisis due to these challenges. Established German carmakers must adapt their business models amid these challenges or risk their future viability.
Gall mentioned that size can be a brake when it comes to adapting to new circumstances. Therefore, it's essential for automakers to be agile and responsive to the changing market dynamics to survive and thrive in this challenging environment.
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