Top Five Auto Makers Report Record Profits: Scotiabank

• Asia and North America lead the way, but losses widen in Western Europe

TORONTO, Nov. 29, 2012 /CNW/ - The five largest auto manufacturers have posted double-digit profit increases in 2012, climbing to a record high of USD$61.4 billion annualized through September, according to the Scotiabank Global Auto Report released today.  

"This represents the third-consecutive annual earnings improvement - a trend likely to remain in place for several years," said Carlos Gomes, Scotiabank's Senior Economist and Auto Industry Specialist. "Our leading indicators point to ongoing gains in global car sales amid a slow, but enduring economic expansion."

According to the report, this year's profit is approaching the massive cumulative loss of USD$69 billion sustained during the tumultuous years between 2007 and 2009, highlighting the industry's dramatic turnaround.

Profitability is improving in most regions, with the exception of Western Europe where industry losses continue to widen. North America tends to receive most of the credit for the improved performance. However, excluding Japan, profits in Asia - the world's largest auto market - continue to make steady progress. Asia now accounts for nearly 30% of global car sales and one-quarter of overall profits. Automakers earned a record USD$2.4 billion in the region during the third quarter, a 58% year-over-year (y/y) surge.

"The earnings improvement is occurring despite a slowing in the pace of global economic growth during the summer," said Mr. Gomes. "However most indicators, especially from the world's two largest economies, point to some recent acceleration in the pace of economic activity, a development which is supportive of further gains in vehicle sales and earnings over the coming year."

Car sales in Asia, excluding Japan, and Latin America are now more than double the sales pace in Western Europe, a sharp reversal from a decade ago when these emerging markets accounted for less than half of the volumes in Western Europe. Even taking into account lower car prices in the emerging markets - USD$13,000 in Asia, excluding Japan, and USD$16,000 in Latin America - automakers already collect more revenue from their operations in these markets than from Western Europe.

"Outside of Western Europe, the industry is also making progress in containing its fixed costs, especially in North America," said Mr. Gomes. "We estimate that after slashing fixed costs by more than 25% during the 2008-2009 industry's restructuring, the two largest North American automakers have trimmed their costs by an additional percentage point over the past year."

Looking ahead, Canadian car sales are expected to ease in November from the previous month's annual rate of 1.7 million units. Quebec and P.E.I. led the way in October, but sluggish labour markets in both provinces suggest that sales gains will be more subdued this month.

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SOURCE: Scotiabank - Economic Reports

Carlos Gomes, Scotiabank Economics, [phone], [email protected]; or
Devinder Lamsar, Scotiabank Media Communications, [phone], [email protected].