The High Cost of Building Autos

Comparative Earnings

There are a couple ways to look at the strengths and weaknesses of the Detroit Three since the 2008 Lehman Brothers collapse. On one hand, General Motors, Ford Motor Company, and Chrysler Group are posting modest profits from the relative strength of the North American auto market, dragged down by European operations.A $.4-billion loss from its troubled Opel/Vauxhall European operations offset GM North America's $2.0 billion earnings before income tax (EBIT), which was down from $2.2 billion in the second quarter of '11. GM's global net revenues fell 41 percent against a 4.6-percent drop in net revenues, and the automaker blamed the revenue decline on the strength of the U.S. dollar versus the euro.Similarly, Ford lost $0.4 billion in Europe in the second quarter, against $2 billion EBIT in North America.Chrysler's $436 million net income in the second quarter offset growing losses at majority owner Fiat. GM partner Peugeot-Citroen PSA was perhaps the automaker hardest hit by the European Union's economic crisis. Meanwhile, Europe's biggest automaker, Volkswagen Group, is surviving the EU crisis while making money in North America and Asia. Its net revenues rose 18 percent in Q2 '12 compared with Q2 '11.Let's compare by throwing in one more variable. GM, VW, Ford, and Chrysler spend billions each year on product development and manufacturing. You can't make better profits without spending stacks of cash to design and build new models. The world's most valuable corporation, Apple, spends billions each year on product development and farms out most of its production to factories in China.Source