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Don't Believe the Carmakers When They Say It's Bad, They Quadrupled Their Profits in 2021

Everyone knows the past year has not gone well for the automotive industry. Everybody kept complaining about the lockdowns, the chip shortages, and the supply chain disruption and how those have led to lost sales and profits. Being hit with rising prices and long waiting times when buying new vehicles, we tend to sympathize with their position. But the truth is, we are the only ones to suffer, while the corporations are doing just fine. In fact, more than fine.
Major carmakers quadrupled their profits in 2021 6 photos
European car sales for 2021, predictions for 2021European car sales for 2021, predictions for 2021European car sales for 2021, predictions for 2021Nissan Intelligent FactoryStellantis' first year anniversary
Listening to carmakers sharing their view of the world, you'd be tricked into believing the automotive industry is on the brink of collapse. This should be due to the disruptions in the supply chain and the production disruptions throughout 2021. Every time you hear that, you should remember that the biggest profits are made in difficult times. It's true that scarcity leads to speculations, and the ones to pay are not the corporations but the customers. And judging by how things are going, the customers are more than willing to pay to shoulder the automotive industry.

If you remember, the pandemic brought production to a halt, and even after the situation had improved, the chip shortages became the number one culprit for production losses. Then the parts shortages hit and the scarcity of the raw materials, and so we've been going from crisis to crisis with no end in sight. But as bad as it seems from the outside, it was a boon for the automotive industry.

As people rushed to buy more vehicles, the carmakers increased prices, blaming this on the cost of materials. The customers didn’t flinch, though, and the buying spree continued unabated. This led the dealers to step in and throw markups left and right because, why not, the market is so bad, and the people are more than willing to pay.

European car sales for 2021, predictions for 2021
But the markups were not the end of it. People still wanted to pay more, and so the new vehicles started selling on the grey market for double their MSRP. And, apparently, everyone was happy because the carmakers (eyes on the ball, people) created a lucrative ecosystem just by reducing production. But ultimately, it’s the customers that are financing this parallel economy.

And financed they did, as all the big carmakers have posted record profits for 2021 or are about to do (the Japanese fiscal year is still ongoing). According to calculations by Automotive News, although the revenue of 10 major carmakers saw a modest increase over 2020 (698 billion vs 624.5 billion), the net profit almost quadrupled, from 14 billion in 2020 to 54 billion in 2021. This is even more than the 32.7 billion recorded in 2019 before the pandemic hit.

The 10 carmakers analyzed are BMW, Ferrari, Ford Motor Company, GM, Hyundai-Kia, Mercedes-Benz, Renault, Stellantis, Tesla, and Volkswagen. The Japanese carmakers were not included in this analysis because their fiscal year ends in March. Nevertheless, the results for the first nine months show a similar trend. Toyota, Nissan, and Honda saw their total operating profits rise 86 percent to 3.4 trillion yen ($28.4 billion).

Stellantis' first year anniversary
Toyota reinforced its image as the most profitable carmaker in the industry, with an operating profit for the first nine months of $19.5 billion. This is more than what Volkswagen made in the full year. On the other hand, Tesla’s profits grew from $2 billion to $6.5 billion, despite many believing it would go bankrupt many times over. Among the U.S. groups, GM’s profits rose by 47% to $14.3 billion, while Ford advanced 260% to $10 billion.

As you can see, the situation is so bad that all carmakers need bigger coffers to stash their profits. And the money will keep coming as all carmakers grow their operating margins. In Europe, the average margin was just under 10%, up from 4.8% in 2020. The U.S. automakers are more or less the same, at 9.7%, up from 5.2%, while the Japanese recorded an average 8.5% margin in the April-December period. Hyundai Group’s margin also grew from 3.4% to 6.3%.

More disruptions are on the horizon in 2022, as the war in Ukraine has already started to take its toll on the automotive industry. Of course, it will be bad, but more price hikes are almost guaranteed to keep that money flowing. It was bad and it will get worse before it will get better, so expect all of us to pay for it. Just don’t bemoan the automotive industry; they’ll be just fine. In fact, more than fine.

 

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