Global auto industry back in the black: Scotia Economics

May 31, 2010   by PLANT STAFF

Largest automakers post $5.5 billion in profits during the first quarter of 2010.

Photo: Ford

TORONTO: Global automotive sales were back in the black in the first quarter thanks to strong sales gains, especially in North America where the five largest automakers returned to profitability, according to Scotia Economics’ latest Global Auto Report.

The world’s five largest automotive manufacturers posted earnings of $5.5 billion after average annual losses of $22 billion from 2007 to 2009.

Although full-year sales in Western Europe are expected to decline to 12.3 million units in 2010 (down from an annualized 13.6 million in the opening months of the year), purchases outside Europe continue to strengthen, rising 23% year-over-year, led by a 27% gain in the BRIC nations.

North American light vehicle sales eased a little in April but have reached an annualized 13.3 million in the first quarter and are expected to reach 13.9 million for the year then rise to 14.6 million in 2011.

However, Carlos Gomes, a senior economist at Scotia Economics told PLANT he doesn’t expect sales to go back to pre-recession levels. “We expect peak US volumes to be in the range to 14 million to 15 million, not the 16 million of the past decade.”

Sales were 15.85 million in 2008 and dropped to 12.68 million in 2009.

Profitability per vehicle also improved during the quarter, jumping from losses last September to more than US$1,500 in early 2010, and profits will likely improve in coming years as volumes expand.

“Of note, the jump in profitability occurred despite nearly a US$200 increase in industry-wide US incentives through March, to more than $2,800 per vehicle,” said Gomes, noting incentives and a recovering economy are driving sales.

The US economy added 290,000 jobs in April, the highest level in more than four years.

“We are not expecting an economic slowdown over the next several years. Sales will be weak in Europe, but other regions will continue to post gains,” he said.

The report notes Asia shows the greatest potential with 39% of total global sales and it’s the most profitable region with a first quarter operating profit of $2.3 billion, roughly 40% of its overall total.

“This is particularly surprising, as the average car price in countries such as China and India averages less than US$12,000 compared with $24,000 in North America and about $20,000 in Europe,” said Gomes.

In contrast, the industry still continues to lose about $400 per vehicle in Europe.

Scotia Economics predicts losses will likely increase as austerity measures introduced in several countries slow economic growth and vehicle sales.

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