Volkswagen, BMW and Mercedes: “Rapid black quarter” for German car manufacturers

The global automotive industry is in decline – and German car manufacturers in particular are clearly feeling the effects of the crisis. The operating profit of Volkswagen, Mercedes-Benz and BMW was around 7.1 billion euros from July to September – and thus fell by almost half compared to the third quarter of 2023. This is shown by an analysis of the financial indicators of the world’s 16 largest car companies, which was carried out by the auditing and consulting company EY.

Sales were also in reverse gear: in the third quarter, German car manufacturers generated six percent less, a total of 145.4 billion euros. The first half of the year was anything but rosy for the companies from Wolfsburg, Stuttgart and Munich: compared to the same period last year, profits fell by 18 percent from January to June and sales fell by 0.4 percent.

However, the weakening automotive industry affected the entire industry in the third quarter: the revenue of all companies examined fell by 1.9 percent to around 485.9 billion euros. Earnings before interest and taxes (EBIT) were a good 29 billion euros – around 23.7 percent lower than a year earlier. With a profit increase of 23 percent and eight percent sales growth, car manufacturers from the USA in particular have recently come out trumps.

“The next few years could be brutal”

EY industry expert Constantin Gall said: “The German car manufacturers in particular are facing a pitch-black quarter.” The records of the post-Corona years would have hidden deep-seated structural problems that are now mercilessly coming to light. The German auto industry is finding it difficult to keep up with the pace of new attackers in the electrical sector – for example from China. The costs are too high and the equipment is too cumbersome. “The next few years could be brutal.”

The automotive industry is in crisis due to the weak economy and is suffering from a lack of demand, especially for electric cars. Ford wants to cut 2,900 jobs in Germany by 2027. In the factory in Cologne, which has been completely converted to electricity and where short-time work already applies, one in four jobs will be eliminated. At VW, wage cuts, factory closures and job cuts are being discussed. According to the works council, three plants and tens of thousands of jobs are at risk. And the suppliers Bosch, ZF, Continental and Schaeffler also want to cut thousands of jobs due to problems with competitiveness, among other things.

The crisis is also visible in the number of cars sold. Most large corporations sold fewer new cars than a year before. Overall, sales fell by 5.6 percent. Only a few companies like Tesla and Ford were able to sell more vehicles.

The situation in the important Chinese car market in particular is getting worse. All manufacturers there except for Tesla – the electric car manufacturer grew by 30 percent – recorded double-digit sales losses in the third quarter. At 17 percent, the Germans’ decline was slightly below the average for all manufacturers. They sold almost every third vehicle in China during this period. In 2020 it was almost 40 percent.

In the People’s Republic, the rapid change towards e-mobility and the emergence of local manufacturers aggressively pushing into the market are increasingly becoming a problem for Western companies: “In China there is bitter cut-throat competition, which is largely based on price There is currently not much to gain for the established companies,” said Gall. But simply because of the size of the market, withdrawal is not an option.

Suzuki is the most profitable car company

According to the EY analysis, the days when German car manufacturers were among the most profitable in the world are currently over: Due to the slump in profits, their margin, which relates operating profit to sales, has almost halved to 4.9 percent. The average margin for all companies was 6.0 percent (minus 2.0 points).

The most profitable car company was Suzuki with 12.7 percent. The Japanese lead the rankings in the third quarter ahead of Kia (10.9 percent) and Tesla (10.8 percent). Mercedes-Benz was in seventh place with a profit margin of 7.3 percent. BMW follows in ninth place with 5.2 percent, while Volkswagen lags behind in twelfth place (3.6 percent). Of the 16 companies analyzed, three were able to improve their margins in the third quarter, while the others reported declining profitability.

Challenges too big?

From Gall’s point of view, European car companies in particular have no choice but to reduce their costs and at the same time work on their technological competitiveness: Despite falling profitability, billions would have to be invested – for example in the areas of software and battery technology, but more recently also in the further development of the internal combustion engine.

“This balancing act could overwhelm some companies, which could lead to mass layoffs and, in the medium term, a new wave of consolidation in the auto industry.” This makes it all the more important that companies improve their internal structures. “Massive cuts, especially in administrative costs, are unavoidable,” said Gall. Spending on research and development by German manufacturers rose by twelve percent to 8.3 billion euros in the third quarter – a record value, according to EY.