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EY: Top auto companies with financial cushion of EUR 226 billion at the end of 2019 message


FRANKFURT (Dow Jones) – In view of the Corona crisis, the car industry is facing a unique slump in sales and profits this year. According to a study by the auditing firm Ernst & Young (EY), the capitalization of the leading companies is comparatively good.

At the end of 2019, the 17 largest car groups in the world had cash and cash equivalents of 226 billion euros – almost six percent more than a year earlier. Toyota showed the highest liquidity with almost 31 billion euros, followed by Volkswagen with just under 26 billion euros, with Honda and Daimler 20 and 19 billion euros respectively.

While overall liquidity increased in 2019, profit fell sharply: the operating profit of the 17 companies analyzed shrank by 13 percent or EUR 13 billion to EUR 85 billion, the operating margin decreased to 4.9 percent, the lowest As of 2009.

However, the margins were already under pressure before the Corona crisis, as Peter Fuß, partner at EY, found. In many cases the reason was high investments in electrification and digitalization, but also special effects such as legacy issues from the diesel crisis. Accordingly, even before the pandemic broke out, many companies had embarked on a tough austerity course Job cuts provided.

Even after the restrictions have been relaxed, the economy will take a long time to reach the pre-crisis level, said Constantin M. Gall, head of the Automotive & Transportation division at EY. Because a marked increase in unemployment, corporate insolvencies and loss of income would dampen demand. The auto industry will continue to struggle with the aftermath of the crisis long after the restart, and “government incentives will likely be needed to lure customers back into the dealerships.”

Achilles heel supply chain

While Fuß believes that the stability of the world’s largest car groups will be temporarily secured thanks to state support measures, the situation of smaller market participants is causing increasing concern: “The global automotive industry is a highly complex and highly internationalized system with many players – and by no means all of them are so financially strong like the top corporations. ” Keeping this system viable is now the biggest challenge.

Given the border closings and massive economic upheavals in Spain and Italy, for example, this is a Herculean task, says Fuß: “If production hopefully starts again in a few weeks, it will become clear whether the supply chains have held up.” In the worst case, the automobile plants would be shut down a few days after startup because essential parts are missing.

Gall fears a wave of bankruptcies and consolidation among both suppliers and car dealers. “The corona pandemic will become a catalyst for a market cleanup across many segments,” he said.

China holds hope

After the massive collapse in car production and new registrations in China at the beginning of the year, there are now more and more positive signals from the Middle Kingdom. “In February, China was the problem child of the global economy, and now the country is becoming a beacon of hope,” says Gall. German car companies in particular could benefit from the current market recovery. More than one in three vehicles produced by the German auto companies were sold in China last year. Gall expects China to become even more important for the German automotive industry this year. “While the new car market in Europe and the USA will be on the ground for months, production and new car sales in China are starting up again. Cash is generated here again.”

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DJG / bam

(END) Dow Jones Newswires

April 10, 2020 08:16 ET (12:16 GMT)


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