Guide to Auto Manufacturing Industry KPIs

Traditionally, auto manufacturers generate the majority of their revenue and profits from selling vehicles and services that are directly related to the automotive business such as maintenance services. Some manufacturers may also generate revenue through financing or leasing options for their vehicles. Revenue generated by auto manufacturing companies can be divided into three segments, namely automotive, parts and services, and financial services. The automotive segment is the largest revenue-generating segment for companies within the industry. This segment generates revenue from the sale of three types of vehicles: passenger, light commercial, and commercial vehicles. Passenger vehicles are designed primarily for the transportation of people rather than goods. These vehicles include compact cars, sedans, SUVs, MPVs (multi-purpose vehicles), and luxury vehicles. On the other hand, commercial vehicles consist of LCVs (light commercial vehicles) such as minivans, vans, mini trucks, pickup trucks, and M&HCVs (medium and heavy commercial vehicles) such as buses and trucks, which cater to a wide range of cargo-market loads such as agriculture, cement, iron and steel, vehicle carrier, petroleum, FMCG, and other applications with options of load bodies, tankers, bulkers, and trailers.

Total revenue for companies in the industry can be simply calculated as the sum of revenue generated from the three segments mentioned above; i.e., automotive, parts and services, and financial services. The automotive segment’s revenue can be determined by multiplying the average selling price (ASP) by the number of units or vehicles sold. Alternatively, the revenue generated from passenger, light commercial, and commercial vehicles can be added together to calculate the automotive segment’s revenue. Both passenger vehicle revenue and commercial vehicle revenue are determined by multiplying ASP by the number of units sold. ASP is an important metric for auto manufacturers as it provides insight into the pricing strategy of an auto manufacturer and the demand for its products. ASP measures the average price at which vehicles are sold to customers during a given period. Units sold measures the number of vehicles sold during a given period. It is a direct measure of a company’s performance in terms of its ability to sell vehicles and generate revenue. Tracking both ASP and units sold helps auto manufacturing companies analyze their revenue trends over time and make decisions on pricing, production, and marketing to improve revenue and profitability.

Production volume or units sold can also be determined using production capacity and capacity utilization rate. Production capacity refers to the maximum number of vehicles that an auto manufacturer can produce within a specific time frame when operating at full capacity. Capacity utilization rate measures how effectively a manufacturer utilizes its production capacity to manufacture vehicles. It is calculated by dividing the current output of vehicles by the potential output within a given period. A high capacity utilization rate indicates that the auto manufacturer is operating close to its maximum production capacity, demonstrating efficient resource utilization and high productivity.

Production volume is calculated by multiplying production capacity by the capacity utilization rate. It is important to note that production volume, which represents the actual number of vehicles produced during a specific period, may not always align perfectly with the number of units sold. Although there can be a slight difference between the two, it is typically negligible.

Financial services is another important revenue segment for companies in the industry. Auto manufacturers offer financing to customers for the purchase of vehicles, either through traditional loans or lease agreements. This provides a significant source of revenue for auto manufacturers, as they earn interest and fees on the financing provided. This also allows auto manufacturers to offer special promotions and incentives to customers to boost sales. In addition to financing, the financial services segment may also offer insurance products, such as vehicle warranties, GAP (guaranteed asset protection) insurance, and liability insurance. This provides additional revenue streams and allows auto manufacturers to offer a one-stop-shop experience for their customers. The finance services segment is highly regulated and subject to various laws and regulations that auto manufacturers must comply with, depending on where they operate.

Many auto manufacturers also have a separate division or subsidiary that specializes in producing and selling auto parts and offering maintenance services for their vehicles. The income generated from the sale of these parts and services is categorized as parts and services revenue for auto manufacturers. This segment forms an important part of the revenue stream for many auto manufacturers as customers tend to go to the dealership or authorized service centers for routine maintenance and repairs. In addition, the parts and services business provides an opportunity to sell additional products and services, such as extended warranties and accessories. Auto manufacturers may produce parts for their own vehicles or supply parts to other manufacturers, as well as to independent repair shops and distributors. Some auto parts are made in-house, while others may be outsourced to third-party suppliers.

Other important metrics for auto manufacturers include days inventory outstanding (DIO) and inventory turnover ratio. These metrics provide a slightly different perspective. DIO is the average number of days it takes for a company to sell its inventory. To calculate DIO, divide the average inventory by the cost of goods sold (COGS), and then multiply the result by the number of days in a given period. A high DIO indicates that a company is holding too much inventory, which can result in higher costs associated with storage, handling, and depreciation. On the other hand, a low DIO suggests that a company is selling its inventory quickly, which can improve cash flow and reduce the risk of inventory becoming obsolete.

Inventory turnover ratio measures how many times a company sells and replaces its inventory in a given period. It focuses on the relationship between the cost of goods sold (COGS) and the average inventory value. A high turnover ratio indicates that the company is efficiently managing its inventory, as it suggests that goods are being sold rapidly.