Tue. Oct 19th, 2021

Car Updates

Carmakers Daimler and BMW plan to limit the range of premium models they ship, even as the shortage across the industry is eased, in an effort to curb the hefty price increases they achieved during the pandemic.

A chronic shortage of semiconductors, on which cars rely for everything from electronic windows to driver assistance systems, has hampered the supply of vehicles, as has the demand from consumers for repeat returns.

Although luxury German carmakers have already deviated from a volume-based approach before Covid-19, customers’ willingness to pay higher prices during the pandemic has encouraged them to go further.

‘We will consciously undersupply the demand level[s], “Daimler CFO Harald Wilhelm told the Financial Times,” and at the same time we [will] shift gears to the higher, the luxury side. ”

BMW has “seen a significant improvement in price capability over the past 24 months”, says Nicolas Peter, CFO. The carmaker’s plan in Munich was’ clear to keep. . . the way we manage supply to maintain our price capability at today’s level, ”he added.

Industry executives, car dealers and analysts say the shortage of chips, which stems from a competition between the automotive and consumer electronics industries for a limited supply of semiconductors, will indicate a new approach to pricing and selling premium models.

“The pandemic has really opened everyone’s eyes – that a different paradigm is possible,” said Arndt Ellinghorst, an analyst at Bernstein. “Everyone loves it, including retailers.”

Discounts usually offered to customers at retailers – usually around 15 percent in mature markets – have been reduced, and some models are sold above the sticker price.

A reduction of one percentage point in the average discount will generate $ 20 billion in additional profits for carmakers, according to Ellinghorst, and discounts in Europe and the US have fallen by at least double the amount from their peak before the pandemic.

BMW’s Peter said that the group’s American dealers, “always claimed. . . well, we need the cars in the showroom, the customer expects to arrive on Saturday morning at 10:00, and he wants to leave with everything ready, number plates attached to the car, at last at 13:00.

Now, however, they say ‘customers are ready to wait three to four months, and that helps our price quality’, he added. ‘Of course, the waiting time should not be too long, but if you buy a premium car like a BMW, it’s an emotional decision. . . I think a short wait is something, which makes the customer experience even bigger and better. ”

The increased pricing ability has already gained momentum for BMW and Daimler. Mercedes returned 12.2 percent in sales in the last quarter, compared to 8.4 percent in the same period in 2018 – the last measure unaffected by the cost of pandemic or diesel emissions. BMW’s margin reaches almost 16 percent, compared to 8.6 percent.

Daimler’s Wilhelm said that although the shortage of chips artificially increased prices, “one day the issue of issue will disappear, and we will continue with the price, margin and focus mix”.

Signs that price power for luxury carmakers appears to be tough come as central banks remain alert to signs of inflation as the world economy recovers.

The European Central Bank raised its inflation forecast for this year to 2.2 per cent this week, but predicts that it will fall below its target of 2 per cent next year and remain at only 1.5 per cent in 2023.

Reported by Martin Arnold in Frankfurt

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