Detroit Three 2014 Business Performance Report: OEMs have decreased earnings

Causes include recalls in North America and slow sales in South America

2015/03/13

Summary

US Recalls

U.S. 2014 automotive market was characterized by "recalls" and "light truck sales"

 The U.S. automotive market for 2014 grew by 5.9% year-over-year (y/y) to 16.5 million units. The U.S. economy recovered from the 2008-2009 global recession and the demand for vehicles returned to the level before the Lehman crisis. Amid the recovery of the U.S. automotive market, the year 2014 was characterized by "recalls" and "light-truck sales."

 The number of vehicles recalled by all automakers in the U.S. in 2014 more than doubled the past record of 30.8 million vehicles in 2004 to 63.95 million vehicles.

 Sales for light trucks, especially full-size pickup trucks and compact and mid-size sport utility vehicles (SUVs), were brisk. According to General Motors Company (GM), the compact SUV segment in the U.S. grew by 17.4% y/y in 2014. As a result, it surpassed the mid-size sedan segment and became the largest segment in the U.S. for the first time.


Detroit 3 Sales by Region

Detroit Three's unit sales results

 Fiat Chrysler Automobiles N.V.'s (FCA's) unit sales substantially increased in North America and also achieved a 5.9% growth y/y on a global basis. Particularly in the U.S., the company's unit sales posted a 16.1% rise y/y, growing its market share by 1.1%. GM's unit sales increased by 5.3% y/y in the U.S. and its global sales achieved a 2.1% growth y/y while the company was being hit by a storm of recalls. Meanwhile, Ford Motor Company's F-150 full-size pickup, the company's most profitable and bestselling model in North America, underwent a redesign. The F-150 has been redesigned with an aluminum body and this change caused the interruption of production to be prolonged. As a result, Ford's unit sales decreased by 0.5% y/y in the U.S. and its global unit sales also declined by 0.1% y/y.

 The unit sales by region show that North America has been a large market for the Detroit Three. Even so, GM sold 3.54 million vehicles in China, a 12.0% increase y/y, in 2014. The company sold more cars in China than in North America.

 In the sluggish South American market, GM's unit sales dropped by 15.3% y/y to 878,000 units. Ford sold 463,000 units, a 13.9% decrease y/y and FCA sold 827,000 units, a 12.9% decrease y/y. In Europe, Ford and FCA each posted an increase in sales while GM marked a substantial 19.3% decrease due to the discontinued marketing of the Chevrolet brand.


Detroit Three's financial performance
2014 Detroit 3 Profitability Comparison
(in millions of  USD)
GM Ford FCA
Revenues 155,929 144,077 116,269
EBIT 6,494 6,282 3,900
(EBIT/Revenues) 4.2% 4.4% 3.4%
Net Income 3,949 3,187 765
Note) For Ford, pre-tax profit is used, not EBIT
1EUR=1.21 USD   Ex rate as of 2014 year end
Source: Press release from GM, Ford, FCA
Detroit 3EBIT by Region

 The Detroit Three's financial performance in 2014 was solid although their basic earnings largely depended on the North American market. Nevertheless, their earnings substantially decreased from the 2013 levels as various factors incurred costs.

 Recall expenses for over 30 million vehicles worldwide, including 27 million units in the U.S., put a squeeze on GM's earnings. The company's earnings in its European operations have not improved. The earnings from its South American operations were in the red.

 Ford introduced 23 models that were either fully or partially redesigned in the global market, including 16 models in North America. Thus, the company incurred expenses involved in the launches. Full-scale sales of most of the models were, however, delayed until 2015. As a result, Ford's earnings deteriorated. In particular, the short supply of the F-150 full-size pickup, the company's most profitable model, negatively affected the earnings. The company's European operations, which are still in the red, improved slightly. The profit-and-loss account of its South American business substantially deteriorated.

 In January 2014, Fiat-Chrysler, after tough negotiations, was finally able to completely acquire the remaining 41.5% shares from the Voluntary Employee Beneficiary Association (the United Automobile Workers Retiree Medical Benefits Trust). The company held an executive board meeting at the end of January 2014, during which the newly merged company was named Fiat Chrysler Automobiles (FCA). FCA posted an extraordinary expense of USD 1.176 billion related to the acquisition. As a result, FCA's net income dropped by 67.6% y/y.



Related Reports:
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US automakers display confidence with luxury and performance models (Jan. 2015)
US market: 2014 sales rise by 5.9% to 16.52 million units (Feb. 2015)