Western car manufacturers, like Germany’s giants, are facing growing pressure as Asian rivals are leaving them behind.
A new report by consultancy EY states the future of some of the classic auto manufacturers is at stake.The crisis is likely to deepen this year, especially among ageing manufacturers whose entire business models are now under threat, the report asserts. “If profits continue to slide, some will soon have serious questions as to their long-term viability,” said Constantin Gall, EY’s automotive specialist. “This competition is simply brutal.”
Western Profits Plummeting, Asia Leads the Way
The EY study looked at the first-quarter profits of the world’s 20 biggest carmakers. It stated that German and US companies are falling behind in both sales and profitability, while Chinese and other Asian companies are making huge strides.
In fact, more than half of the world’s six most profitable carmakers are now Asian.
Gall pointed out weak demand, high production costs, and a sluggish transition to electric cars as key challenges weighing down German manufacturers. Compounding the misery is their declining market share in China, where local brands are quickly supplanting Western players.
Trade Tensions Add Fuel to the Fire
American trade policy is also penalizing Western automakers. New 25% tariffs on foreign autos, which were enacted in April by the former U.S. President Donald Trump, could produce multi-billion-dollar losses for companies on either side of the Atlantic, Gall warned. Meanwhile, Chinese manufacturers—are less reliant on the U.S. market—are unaffected and continue to expand globally.
A few Goliaths and suppliers have already cut costs in response. But Gall thinks that cutting costs will not be enough. Chinese companies have demonstrated that speed, flexibility, and strategic investment are performing much better than simple cost-cutting.
