Car industry study: The second quarter will be much worse – bankruptcies are likely

The industry’s profits fell in the first quarter, and now the crisis is likely to have an even greater impact. Experts believe bankruptcies are likely.

Volkswagen ID.3 production at the Zwickau plant – (photo by VW)

The effects of the corona crisis are likely to cause the balance sheets of the world’s largest car companies to fall even worse in the second quarter than before. In a current analysis, the industry experts from the consulting firm EY assume that the majority of the large manufacturers will have to present red figures in July.

“Especially companies that are primarily engaged in the European market will be hit hard in the second quarter, because the crash was particularly massive here,” said the head of Automotive & Transportation at EY, Constantin M. Gall, on Thursday.

Already in the first three months of the year, the crisis opened huge gaps in the coffers. Taken together, the largest manufacturers in the operating business only posted a profit of around $8.5 billion, as EY calculated in its regular industry analysis. This is a drop of more than half compared to the first quarter of 2019 and the lowest level since 2009. The sales figures decreased by 21 percent, the sales after all by only 9 percent.

Passenger car sales in EU from February 2018 to April 2020 – (data source: ACEA)

“In the first quarter, we saw only the initial impact of the global Covid 19 pandemic. The second quarter will be much worse,” Gall warned. Four companies from the ranks of the 17 largest car groups in the world had reported a loss in the operating business in the first quarter. Peugeot and Renault are missing in the list because they had not provided any corresponding figures. Some companies have already announced losses in the second quarter.

The crisis is now reinforcing a downward trend that has been emerging for some time, it was said. High investments in electrification and digitization, trade disputes and weak economic development would have put margins under pressure.

Now there is a long dry spell ahead, investments have to be put to the test, excess capacity reduced. “And consolidation is accelerating. Not all automakers will survive this crisis,” said Gall. After all, hope is the rapid recovery in China, from which German car manufacturers in particular should benefit.

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