What Drove Automakers’ 1Q16 Profit Margins Higher?
Decoding the Auto Industry's 1Q16 Earnings
US automakers’ 1Q16 earnings
Previously, we saw how automakers’ revenues increased in 1Q16. We also saw how Ford’s (F) excellent performance in North America kept it ahead of its peers.
In the auto industry, margins are one of the most important parameters to analyze a company. A significant and sustainable expansion in automakers’ profit margins indicates sound growth in terms of profitability. In this article, we’ll take a closer look at the 1Q16 margins of mainstream automakers.
1Q16 margins
In 1Q16, all the automakers (VCR) that we’re covering in this series, including General Motors (GM), Ford (F), and Fiat Chrysler Automobiles (FCAU), reported year-over-year expansions of their profit margins.
General Motors (GM) reported an expansion in profit margin to 5.2% in 1Q16 against 2.6% in the corresponding quarter of 2016.
Similarly, Ford’s profit margin in 1Q16 stood at 6.5%, higher than 3.4% in the corresponding quarter of the previous year. Fiat Chrysler’s profit margin expanded to 1.8% in the quarter, which was significantly more than its 0.3% margin in 1Q15.
Why were Ford’s margins higher?
Ford’s 1Q16 profit margins were higher than its direct peers GM and Fiat Chrysler. This was primarily due to Ford’s dominance in the US pickup truck segment with its legacy F-series trucks.
Increased sales of medium-sized pickup trucks and crossovers in 1Q16 helped all major automakers expand their margins in the quarter. In general, automakers’ margins from pickup trucks and sports utility vehicles remain higher than those from small cars.
Note that Ford’s margins were higher than its direct peers, including GM and Fiat Chrysler, but lower than those of Japanese automaker Toyota (TM). In recent years, Toyota has been trying to adjust its pricing strategy to protect its margins in various geographical markets. Improved pricing as a result of these efforts helped the company expand its margins in the last couple of years.
Next, we’ll see if investors are considering selling their auto industry stocks.
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