Better than before Corona

Globally, the auto industry’s business is thriving again, despite the shift to electric drives. In the first quarter of 2021, according to a study, it already had more sales and also earned more money operationally than before the corona crisis. According to the industry survey by the consulting firm EY, the profit of the largest car manufacturers before deducting interest and taxes even rose in a ten-year comparison to the highest value ever measured in a starting quarter.

The benchmark for EY’s quarterly calculations are the financial ratios of the 16 largest car manufacturers. Assuming constant exchange rates, the industry giants turned over 403 billion euros between January and the end of March – around 35 billion more than in the previous year and only around 5.8 billion less than in the record year 2018.

Operating profit rose even more significantly: If Renault and the Stellantis Group with brands such as Citroën, Opel and Peugeot are excluded here due to a lack of data, the figure comes to 29.4 billion euros. The operating profit for the sector was therefore almost a third higher than in the previously decisive first quarter of 2017.

EY automotive expert Peter Fuß also attributes the records to the fact that many car companies had already launched cost-cutting programs before the pandemic, some of which were tightened up even further in view of the pandemic: “The first-quarter results show that some companies have indeed made progress in adjusting fixed costs.”

But it is also worth noting that the ramp-up of new drive technologies such as electromobility and a significant increase in sales of electric cars and plug-in hybrids have not had a noticeable negative impact on margins, says Fuß. However, according to the Ifo Institute, this structural change is leading to significant job losses. As a result of the switch to e-mobility, one-third of jobs will soon be “up for grabs.” Whether the overall positive development of the automotive industry will continue depends crucially on the further development of the still unresolved chip crisis. This is repeatedly causing production to be halted at numerous car manufacturers. “The supply bottlenecks for semiconductors are leading to restrictions in production, some of which are considerable, and several million vehicles are likely not to be built in the course of this year,” explains Fuß.

Despite this, German car manufacturers and their suppliers assess their business as better than it has been for two years. A corresponding barometer from the Munich-based Ifo Institute jumped by 10.9 points in April – to 21.6 points. Expectations among auto managers also improved: this indicator moved up by 6.3 points to 24.9. “The car manufacturers have overcome their Corona low,” is how Ifo expert Klaus Wohlrabe interprets the figures. Demand is rising, the order backlog is increasing, and car manufacturs are also expecting increases in the export business. Production is therefore to be ramped up.

Car manufacturers were asked about their capacity utilization. The figure rose to 91.1 percent in April, up from 84.2 in January. They were also asked about reasons why production is being curtailed. Delivery problems for primary products are the big issue here: 60.4 percent of the companies are currently complaining about them. In July 2020, the figure was only 5.8 percent, while in April 2020 it was 42 percent. Several automotive plants have had to announce short-time work due to the shortage of silicon chips, for example.

At the same time, companies are planning to employ fewer people despite good business. “Employment plans continue to envisage job cuts,” writes the Ifo Institute. This reflects the structural change in the industry, it adds. EU emissions targets are forcing the industry to invest significantly in the manufacture of electric vehicles, the production of which is likely to be less labor-intensive in the long term.