Earnings season is in full swing for publicly traded companies worldwide. Three major car manufacturers—Daimler, Toyota, and General Motors—recently made quarterly financial information available to shareholders. Given the turbulence facing the auto market (trade war concerns, increased commodity prices, and softening Asian demand) there was some hope that the latest round of earnings information would allay investors’ concerns about a long-term slowdown. Far from providing optimism (or clarity) on the macro trends they face, however, the wide range of results the carmakers reported makes the outlook fuzzy at best moving forward.
Profit numbers at Toyota fall sharply
Toyota’s profit numbers for the fiscal quarter ended December 31 can’t have given shareholders much to celebrate. Net income slipped as much as 80 percent from the year-ago period to USD $1.63 billion (181 billion yen), a far cry from the $8.4 billion (940 billion yen) it earned October-December 2017. While those 2017 figures were boosted by an artificial one-time bump from the Trump tax cuts, the year-over-year decline is still hard to swallow.
A dismal profit picture was further complicated by sales numbers that were reasonably solid across the board. That quarterly sales were up almost 3 percent from the year-ago quarter indicates that sharp margin compression was likely to blame for the profit miss. Rising input costs are putting pressure on Toyota’s margins, the company said, and if demand continues to slow, the overall situation could grow even uglier from here.
Daimler hurt by trade war pressure
Daimler, whose luxury car flagship Mercedes-Benz has struggled for much of the past year, had results largely in line with Toyota’s. Net profit plummeted 50 percent to $1.85 billion (1.64 billion Euros) on a 7 percent revenue increase to $52.64 billion (46.6 billion Euros). Executives said Daimler faced “strong headwinds” last quarter. The most heavily-cited issues were the U.S.-China trade war, tighter regulatory scrutiny on diesel engine products, and the imperative from governments worldwide for automakers to add more electric vehicles to their sales mix. The fact that none of those concerns seem likely to completely fade away anytime soon will undoubtedly weigh on the minds of investors moving forward.
General Motors results obscure the market’s prospects
The report’s lone bright spot for the automotive industry came from General Motors. In the company’s fiscal fourth quarter, earnings were $2.1 billion—a huge improvement from a $5-billion loss recorded in the prior year quarter. Revenues also beat expectations, rising to $38.4 billion.
Amid the gloomy backdrop of Toyota and Daimler’s reports, it’s tempting to view GM’s more positive profit numbers with optimism for the car market as a whole. The company’s chief financial officer herself, however, urged caution in that regard. Of rising commodity costs, she said she expects an additional $1 billion in input costs over the course of fiscal ’19. "It's a volatile environment as you well know, and we're going to have to see how that goes," she added. In spite of the company’s better-than-expected financial metrics, leaders emphasized that GM is not immune to the same macroeconomic challenges facing its Japanese and German counterparts.