Canadian Manufacturing

Top five automakers report record profit growth in 2012: Scotiabank

Year's profit of $61.4-billion approaching $69-billion cumulative loss during recession of a few years ago


TORONTO—The five largest auto manufacturers have posted double-digit profit increases in 2012, climbing to a record high of $61.4-billion annualized through September, according to a new report.

The Scotiabank Global Auto Report found the year’s profit is approaching the $69-billion cumulative loss during the recession of a few years ago.

“This represents the third-consecutive annual earnings improvement—a trend likely to remain in place for several years,” Scotiabank senior economist and auto industry specialist Carlos Gomes said in a statement.

“Our leading indicators point to ongoing gains in global car sales amid a slow, but enduring economic expansion.”

Profitability is improving in most regions, according to the report, 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 per cent of global car sales and one-quarter of overall profits.

Automakers earned a record $2.4-billion in the region during the third quarter, a 58 per cent year-over-year (y/y) surge, according to Scotiabank.

“The earnings improvement is occurring despite a slowing in the pace of global economic growth during the summer,” Gomes said.

“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—$13,000 in Asia, excluding Japan, and $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,” Gomes continued.

“We estimate that after slashing fixed costs by more than 25 per cent during the 2008-09 industry’s restructuring, the two largest North American automakers have trimmed their costs by an additional percentage point over the past year.”

Looking ahead, Scotiabank said Canadian car sales are expected to ease in November from the previous month’s annual rate of 1.7-million units.

Quebec and Prince Edward Island led the way in October, but sluggish labour markets in both provinces suggest sales gains will be more subdued this month.