wsj.com: Motor City profits lagged behind both European and the top Indian and Chinese firms in 2014
The top three auto makers in China and India earned combined about as much as the Detroit Three last year, according to a new study of industry profitability.
U.S. auto makers’ ability to finance costly technology and emissions requirements from earnings will be tested by a broader group of strong competitors that for the first time include more profitable Indian and Chinese car makers.
Top auto makers in China and India earned 37.5% more profit excluding preferred dividends in fiscal 2014 than their U.S. counterparts, joining European and Japanese auto companies in out-earning the Detroit Three, said AlixPartners LLP, a New York-based consulting firm with a global automotive practice. Its 2015 automotive outlook, released on Tuesday, shows emerging Asian auto makers last year generated margins that were about double those of General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV’s Chrysler unit.
The emergence of Asian powerhouses—notably India’s Tata Motors Ltd. and China’s SAIC Motor Corp.and Great Wall Motor Co.—represents the latest dent in Detroit’s once-global dominance. Over the past 15 years, U.S. auto makers went from delivering more than 60% of world-wide car-company profit to delivering about 17%, the consulting firm said.
The trend raises questions about the global competitiveness of GM, Ford and Fiat Chrysler on the eve of labor negotiations with the United Auto Workers union and amid an aggressive push by Fiat Chrysler Chief Executive Sergio Marchionne for industry consolidation. The U.S. market is on pace for 17 million light-vehicle sales in 2015, the best year in more than a decade, but Detroit needs better returns to develop self-driving cars and electric powertrains and to combat new entrants like Google Inc. and Tesla Motors Inc.
While U.S. sales sizzled in 2014, the year also had challenges that crimped the bottom line. Detroit auto makers shouldered heavy vehicle-recall expenses, even as those costs were somewhat offset by a sharp rise in sales of profitable trucks and sport-utility vehicles.
EN
U.S. auto makers’ ability to finance costly technology and emissions requirements from earnings will be tested by a broader group of strong competitors that for the first time include more profitable Indian and Chinese car makers.
Top auto makers in China and India earned 37.5% more profit excluding preferred dividends in fiscal 2014 than their U.S. counterparts, joining European and Japanese auto companies in out-earning the Detroit Three, said AlixPartners LLP, a New York-based consulting firm with a global automotive practice. Its 2015 automotive outlook, released on Tuesday, shows emerging Asian auto makers last year generated margins that were about double those of General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV’s Chrysler unit.
The emergence of Asian powerhouses—notably India’s Tata Motors Ltd. and China’s SAIC Motor Corp.and Great Wall Motor Co.—represents the latest dent in Detroit’s once-global dominance. Over the past 15 years, U.S. auto makers went from delivering more than 60% of world-wide car-company profit to delivering about 17%, the consulting firm said.
The trend raises questions about the global competitiveness of GM, Ford and Fiat Chrysler on the eve of labor negotiations with the United Auto Workers union and amid an aggressive push by Fiat Chrysler Chief Executive Sergio Marchionne for industry consolidation. The U.S. market is on pace for 17 million light-vehicle sales in 2015, the best year in more than a decade, but Detroit needs better returns to develop self-driving cars and electric powertrains and to combat new entrants like Google Inc. and Tesla Motors Inc.
While U.S. sales sizzled in 2014, the year also had challenges that crimped the bottom line. Detroit auto makers shouldered heavy vehicle-recall expenses, even as those costs were somewhat offset by a sharp rise in sales of profitable trucks and sport-utility vehicles.
EN
The top 24 auto makers in China and India earned 37.5% more profit excluding preferred dividends in fiscal 2014 than their U.S. counterparts.
UAW officials, looking for a payoff during good times, have said they would push for raises during talks this summer. Detroit’s inability to deliver industry-leading profits suggests domestic auto makers can’t afford to be more generous.
“It points to a new world order,” AlixPartners managing director Mark Wakefield said in an interview. He said car companies need to make more money than they did when Detroit was dominant because “they need to invest in technologies that would not have existed in the budget 10 or 20 years ago.”
Many auto companies are racing to develop safer cars capable of driving down the road on their own, though the products may not be economically viable for many years. In a recent presentation, Mr. Marchionne said top auto makers spent over €100 billion ($114 billion) for product development in 2014 and expects that pace to continue.
Most auto makers say they are increasing spending to meet regulatory demands and remain technologically relevant.
Fiat Chrysler’s Mr. Marchionne is pushing GM and other auto makers to consider partnerships or a merger as a way to more efficiently invest for the future. GM isn’t interested in a deep tie-up, saying it is big enough to meet the challenge and that existing partnerships—including a joint-venture with China’s SAIC—are sufficient.
Still, Japanese auto makers such as Toyota Motor Corp., and Europe’s luxury-car companies, includingBMW AG, deliver the bulk of industry’s profit. As a result, non-U. S. auto companies are widely considered to be better able to meet coming fuel economy regulations and succeed in a costly technology race, even though the American auto market is among the largest and most lucrative.
Detroit has enjoyed a string of profitable years following the financial crisis of 2008 that pushed GM and Chrysler into government-led restructurings. The roughly $78 billion in income earned between 2010 and 2014 is about equal to the $82 billion between 1995 and 1999—a period AlixPartners dubs the Motor City’s “Golden Age.”
But U.S. auto makers bled cash in the decade leading to the bankruptcies, allowing Europe and Japan to race ahead. During that Golden Age, Asian and European auto makers booked $48 billion in profit, or about half of Detroit’s earnings; that number grew to $329 billion in the 2010 through 2014 period.
By comparison, auto makers pulled in a collective $96 billion in profit globally last year, AlixPartners’ Mr. Wakefield estimates. About $11 billion of that was earned by the top 24 companies in China and India; Detroit’s auto makers collectively earned about $8.3 billion in 2014, or slightly more than the $8 billion that Tata, SAIC and Great Wall collectively earned during that same period.
Sean McAlinden, chief economist at Ann Arbor, Mich.-based industry researcher Center for Automotive Research, said U.S. auto makers “don’t make enough money. We make chump change in terms of what we have to invest,” allowing more profitable rivals to spend more and speed up their new-model development times.
UAW officials, looking for a payoff during good times, have said they would push for raises during talks this summer. Detroit’s inability to deliver industry-leading profits suggests domestic auto makers can’t afford to be more generous.
“It points to a new world order,” AlixPartners managing director Mark Wakefield said in an interview. He said car companies need to make more money than they did when Detroit was dominant because “they need to invest in technologies that would not have existed in the budget 10 or 20 years ago.”
Many auto companies are racing to develop safer cars capable of driving down the road on their own, though the products may not be economically viable for many years. In a recent presentation, Mr. Marchionne said top auto makers spent over €100 billion ($114 billion) for product development in 2014 and expects that pace to continue.
Most auto makers say they are increasing spending to meet regulatory demands and remain technologically relevant.
Fiat Chrysler’s Mr. Marchionne is pushing GM and other auto makers to consider partnerships or a merger as a way to more efficiently invest for the future. GM isn’t interested in a deep tie-up, saying it is big enough to meet the challenge and that existing partnerships—including a joint-venture with China’s SAIC—are sufficient.
Still, Japanese auto makers such as Toyota Motor Corp., and Europe’s luxury-car companies, includingBMW AG, deliver the bulk of industry’s profit. As a result, non-U. S. auto companies are widely considered to be better able to meet coming fuel economy regulations and succeed in a costly technology race, even though the American auto market is among the largest and most lucrative.
Detroit has enjoyed a string of profitable years following the financial crisis of 2008 that pushed GM and Chrysler into government-led restructurings. The roughly $78 billion in income earned between 2010 and 2014 is about equal to the $82 billion between 1995 and 1999—a period AlixPartners dubs the Motor City’s “Golden Age.”
But U.S. auto makers bled cash in the decade leading to the bankruptcies, allowing Europe and Japan to race ahead. During that Golden Age, Asian and European auto makers booked $48 billion in profit, or about half of Detroit’s earnings; that number grew to $329 billion in the 2010 through 2014 period.
By comparison, auto makers pulled in a collective $96 billion in profit globally last year, AlixPartners’ Mr. Wakefield estimates. About $11 billion of that was earned by the top 24 companies in China and India; Detroit’s auto makers collectively earned about $8.3 billion in 2014, or slightly more than the $8 billion that Tata, SAIC and Great Wall collectively earned during that same period.
Sean McAlinden, chief economist at Ann Arbor, Mich.-based industry researcher Center for Automotive Research, said U.S. auto makers “don’t make enough money. We make chump change in terms of what we have to invest,” allowing more profitable rivals to spend more and speed up their new-model development times.
