The auto industry is a key indicator of national and global economic health, generating over a trillion dollars in worldwide revenue in 2015. Registered vehicles in the United States surged 2.3% in 2015, a 5.3 million increase over 2014. Domestic auto sales, numbering a record 17.5 million in cars and light trucks, are expected to increase in 2016 as interest rates stay low and lower gas prices spark sport utility vehicle (SUV) purchases. Thus far in 2016, the following five companies are among the most profitable auto companies in the world.
Toyota Motor Corporation
Toyota Motor Corporation (NYSE: TM) reported a 5% drop in U.S. sales in August 2016. The company’s flagship Toyota and Scion sedan sales fell 10.5% year over year (YOY), while increases in SUV numbers bolstered an otherwise lackluster period. Larger margins in luxury SUVs such as the Lexus NX have Toyota intent on increasing supply throughout the rest of the year.
Despite the step back, Toyota continues to stand atop the pile of global automakers in terms of profitability. Strength in its home market of Japan, as well as solid showings in African and Middle Eastern markets, saw TM maintain a trailing 12-month 13.33% return on equity (ROE) even though Q2 2016 YOY revenue fell by 5.7%.
General Motors Company
The biggest of the U.S. automakers, General Motors Company (NYSE: GM), has a market cap of $50.33 billion as of Sept. 2, 2016. Coming off a record 2015 year in which it sold 17.47 million vehicles, General Motors predicts 2016 sales will not surpass the previous year’s total. Less-profitable fleet sales have been scaled back, but higher-margin August retail sales also decreased about 5%.
Significant capital requirements in the auto industry warrant that companies have the ability to finance research and development (R&D) and meet their debt obligations. General Motors' debt-to-equity (D/E) ratio stood at 1.73 at the end of the 2016 second quarter, a measure well below the average 2.5 level of industry peers.
Nissan Motor Co. Ltd.
A 17-year-old strategic alliance with Renault SA (OTC: RNSDF) has helped Nissan Motor Co. Ltd. (OTC: NSANY) rise from the depths of near-bankruptcy in 1999. The Franco-Japanese partnership, viewed initially in Yokohama with skepticism, nonetheless vaulted Renault CEO Carlos Ghosn to immense popularity as Nissan rose from the ashes.
Ghosn predicted Nissan will achieve a considerable operating profit margin of 8% by the end of the 2016 Japanese fiscal year, which closes on March 31, 2017. However, appreciation in the Japanese yen has Nissan officials stepping away from that projection. The company did reach a healthy 7.2% margin in the quarter ending June 30, 2016, a 0.2% increase from the same quarter in the prior year.
Honda Motor Company
Strong 2016 demand for SUVs from April through June in China and the United States exceeded both internal and analysts’ expectations for Honda Motor Company (NYSE: HMC). Honda’s conservative guidance had undermined investor faith in the company according to Takaki Nakanishi, an analyst at Jefferies Group LLC. However, net income of $1.7 billion surpassed consensus estimates of $1.3 billion, a result that Nakanishi feels will renew the interest of Honda speculators. Tax cuts on the purchase of small sedans fostered greater-than-expected sales volume in China.
More surprises took shape in the second quarter of 2016 as Daimler AG (OTC: DDAIF) remained on track to meet its operating profit targets for the balance of the year, despite a one-time charge of $1 billion. Declining gas prices spurred increased sales of vans and buses, while Mercedes vehicle purchases were also part of a 7% YOY increase. Profit margin rose significantly in Q2 2016, from 3.86% to 6.29%, for an improvement of 24 basis points from the previous year’s quarter.