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Ford, GM Top Global Profit Charts With Volkswagen Lagging

Ford, GM Top Global Profit Charts With Volkswagen Lagging

“Ford is very strong in China compared with GM and this will help Ford over the next couple of years”

Two U.S. automakers were the most profitable mass vehicle makers in the first half of 2016, with Ford Motor just edging out General Motors,  and the winner demonstrating that volume is not crucial for making real money in the auto business.

That’s the conclusion of a report from the Center for Automotive Research (CAR) at the University of Duisberg-Essen in Germany.

Ford has been leveraging its “One Ford” plan to raise efficiency, and the future looks healthy because of this and impressive plans in China, CAR director Professor Ferdinand Dudenhoeffer said.

Looking to the future, Dudenhoeffer expects Japanese manufacturers like Honda and Toyota to slip back, while the Americans accelerate ahead.

The report from CAR said Ford made an operating profit margin of 8.7% after making 3.4 million cars and light trucks in the first six months. That makes it number 5 in the world. GM was second in the race after selling 4.8 million cars with a profit margin of 8.6%.

3rd place Toyota made an 8.0% operating profit margin. Toyota sold 5.0 million vehicles in the period, slightly less than number 1 seller Volkswagen, which brought up the rear with a margin of 4.5%.

Full capacity
“According to economic theory it is simple. The largest should be the most profitable because of economies of scale, but in practice this has turned out differently. The manufacturer which has full capacity and has good cost structures will be the most profitable,” said CAR director Professor Ferdinand Dudenhoeffer.

Dudenhoeffer said the profit was calculated on an “operating” basis which excludes untypical one-off charges against profits like Volkswagen’s “dieselgate” costs, or unforeseen expenses like natural disasters or the Takata faulty air-bag scandal. Financial services were excluded too, to catch a snap shot of the basic auto businesses.

Fiat Chrysler Automobiles (FCA) was in 6th place behind Peugeot-Citroen of France and Hyundai-Kia of Korea with 5.9%.

Dudenhoeffer said profits are more crucial than ever for the car business.

“The carmakers need their profits because the industry is facing major upheavals and huge investment as they embrace electromobility, autonomous driving and new competitors and mobility systems like UBER,” Dudenhoeffer said.

Volkswagen’s profit performance was inconsistent, with the troubled VW brand at 1.7% and SEAT (2.1%) struggling for profits, and Skoda (9.6%), Audi (8.8%), Porsche (16.7%) doing well. SEAT is a Spanish based manufacturer making rebadged VWs. Skoda does the same thing based in the Czech Republic.

Impressive
Dudenhoeffer said Ford’s performance in Europe was impressive after making losses last year. GM Europe’s Opel-Vauxhall barely broke even.

Ford was reaping the awards of previous CEO Alan Mulally’s One Ford plan which sought to concentrate on the core business.

“Ford has been very cost efficient. It closed factories in Europe removing excess capacity, and they didn’t invest as much as the competition in product and made themselves very efficient. They have a good light commercial vehicle business in Europe too, a good line up of SUVs with capacity and demand well balanced,” Dudenhoeffer said in an interview.

Can Ford continue this success?

“Ford is very stable in the world and doing well in the U.S. and has planned capacity in a sound way to improve performance. It is very strong in China compared with GM and this will help Ford over the next couple of years,” he said.

Analysts said most big car makers reported strong profits in the first half of 2016, but fear this may be the peak. Ford reported strong profits in the second quarter but less than forecasts. It warned the U.S. industry’s long rally might be at an end. Ford also warned that the European market, after recent strong growth, might also be getting ready to weaken after the Brexit shock.

How will the competition fare in the future?

“I think if we take a 10 year approach, it will be most challenging for the Japanese carmakers with Honda and Toyota not as strong. They will be the big losers, with the Americans becoming strong again, the Europeans and Koreans too. The Japanese are lagging in preparing for the new mobility and autonomous driving and in my view they will be the biggest losers,” Dudenhoeffer said.

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