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Automakers profit from luxury models, North America, China -McKinsey

A car bonnet emblem of a Mercedes-Benz car is seen at the annual news conference of Daimler AG in Stuttgart February 5, 2015. REUTERS/Ralph Orlowski

By Joseph White and Bernie Woodall

NEW YORK (Reuters) - The world's biggest automakers increasingly are making money by producing luxury models and reaping profits in China and North America, management consulting firm McKinsey & Co said in a report issued on Wednesday.

    McKinsey’s findings dovetail with comments by industry executives this week at the annual New York Auto Show. They say they are bullish on the luxury business in China and on the U.S. market because of its strong demand for SUVs and trucks.

In North America, automakers and suppliers have restructured, reduced production capacity, and cut and consolidated dealer networks since the 2008-2009 financial crisis, McKinsey analyst Hans-Werner Kaas said.

Also helping is that the U.S. manufacturers are simply making better cars and trucks, Kaas said.

About 70 percent of the profit logged in 2014 by the world's 21 biggest automakers came from North America and China, up from 65 percent in 2013. And premium models that accounted for only 12 percent of 2014 sales volume generated 38 percent of the companies' profit, up from 33 percent in 2013, McKinsey found.

China’s sales growth rate has slowed in recent years, Kaas said, but “the volume increase has been substantial.” The nation's luxury vehicle market is also rich and growing, he added.

In North America, “the strong share of SUVs and crossovers is also a driver behind the profit pool,” Kaas said.

The lure of the profitable U.S. pickup truck is strong, even for brands that traditionally have not played in that segment of the business.

“Pickups driving around Greenwich, Connecticut, they’re not going to job sites,” said Steve Cannon, head of Daimler AG’s (DAIGn.DE) Mercedes-Benz brand in the United States. “There is a market for it; we’re evaluating it.”

Mercedes is developing a pickup truck for markets outside the United States.

    The big emerging markets – Brazil, Russia and India – that captured significant auto industry investment over the past decade have yet to deliver the sales or profits automakers hoped for, McKinsey found.

“If you take a 10-year view, those markets have potential," said Kaas. "But you need to take a 10-year view.”

Overall, the top 21 automakers made $127 billion in operating income in 2014, up from around $5 billion in 2008 and $6 billion in 2009, McKinsey said.

(Editing by Lisa Von Ahn)