The big Porsche Cayenne SUV accounted for about half of Porsche's sales last year. The new, smaller Macan SUV, shown here, should boost Porsche's -- and Volkswagen's -- profits again in 2014. Photo credit: Porsche.

For the last few years, Volkswagen (VWAGY -1.38%) has been one of the most profitable automakers in the world, rivaled only by super-efficient Japanese giant Toyota (TM -3.46%). 

What's the German company's secret? There are actually several, but a big one is the amazing profitability of VW's stable of luxury brands. As Motley Fool senior auto analyst John Rosevear explains in this video, Porsche in particular stands out for its tremendous profitability -- with a 2013 profit that nearly exceeded that of the much larger-selling VW brand itself.

A transcript of the video is below. 

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John Rosevear: Hey Fools, it's John Rosevear, senior auto analyst for Fool.com. The Volkswagen Group released its annual report for 2013 last week, and it's just a fascinating snapshot of what's working in the global auto business right now.

In one word, what's working is "luxury."

VW owns a bunch of luxury vehicle brands, including Audi, Bentley Motors, Lamborghini, and Bugatti, but the one that really produced some eye-popping results last year is Porsche. Last year the VW Group sold 9.7 million vehicles around the world, from tiny cars to big trucks. Porsche accounted for a little over 162,000 of those, just 1.7%. But Porsche accounted for 22% of the VW Group's total profits.

Porsche made almost as much money as the Volkswagen brand did, and the VW brand sold almost 6 million vehicles.

If I told you that you could make 2.9 billion euros building and selling 6 million cars, or you could make 2.6 billion euros building and selling just 162,000, which business would you rather have? VW would of course say "both," because the economies of scale from the VW brand help play a role in Porsche's profitability, but it's a really clear illustration of why luxury brands are suddenly a high priority at just about every global automaker right now.

And it gets even more dramatic if you fold Audi into this calculation. Audi is of course a much higher-volume brand than Porsche, Audi sold almost 1.6 million vehicles last year. And it made almost twice as much money as Porsche, a little over 5 billion euros.

But when you add them together you really see the power of the luxury car market here. In terms of sales volume, Audi and Porsche together were just under 18% of the VW Group's total sales last year. But in terms of profits, the two represented 65% of VW's total pre-tax profit of 11.67 billion euros last year. That's a little over $16 billion, by the way.

So why are luxury brands so profitable? First, you can price the cars higher and get higher profit margins, that's simple. Second, with a company like VW, you see Audis and Porsches benefit from economies of scale, shared engineering and parts with the mass-market VW brand models. Like here's one example: The Porsche Cayenne SUV shares a lot of parts under the skin and a lot of engineering with the Audi Q7 and the big VW SUV, they all share a platform called "PL71," and on the next generation of that platform there will also be a Bentley SUV, that will be an amazingly profitable product.

But if you've wondered why Ford (F -2.39%) is investing in Lincoln, and General Motors (GM 0.84%) is putting big muscle behind Cadillac, and Nissan (NSANY -1.62%) is expanding Infiniti, the profits that VW is making from Audi and Porsche are why. Thanks for watching.