Current Latest News
Business

BMW and Daimler pledge to keep prices high when chip crisis ends

Automobiles updates

Carmakers Daimler and BMW plan to limit the volume of premium models they ship even once the industry-wide chip shortage eases, in a bid to lock in the hefty price increases they have achieved during the pandemic.

A chronic shortage of semiconductors, which cars rely on for everything from electronic windows to driver assistance systems, has hobbled the supply of vehicles just as consumer demand rebounds from repeated lockdowns.

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

“We will consciously undersupply demand level[s],” Harald Wilhelm, Daimler’s chief financial officer told the Financial Times, “and at the same time we [will] shift gears towards the higher, the luxury end.”

BMW had “seen a significant improvement in pricing power in the last 24 months,” said chief financial officer Nicolas Peter. The Munich-based carmaker’s plan was “clearly to maintain . . . the way we manage supply to maintain our pricing power on today’s level,” he added.

Industry executives, car dealers and analysts say that the chip shortage, which has its roots in a competition between the auto and consumer electronic industries for a limited supply of semiconductors, will herald a new approach in 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 dealers.”

Discounts typically offered to customers at dealerships — usually around 15 per cent in mature markets — have been slashed, with some models being sold above sticker price.

A one percentage point decrease in the average discount would release $20bn in extra profits for car manufacturers, according to Ellinghorst, and discounts in Europe and the US have dropped by at least double that amount from their pre-pandemic peak.

BMW’s Peter said that the group’s US dealers, “always claimed . . . well we need the cars in the showroom, the customer is expecting to pop in on Saturday morning, 10am, and he wants to leave with everything done, fixed number plates on the car at 1pm latest.”

Now, however, they say “customers are ready to wait three to four months, and this is helping our pricing power,” he added. “Of course the waiting time must not be too long, but if you buy a premium car like a BMW, it’s an emotional decision . . . to have a short waiting time is something, I believe, which makes the customer experience even greater and better.”

The increased pricing power has already fed through to the bottom lines for BMW and Daimler. Mercedes achieved a 12.2 per cent return on sales in the last reported quarter, up from 8.4 per cent in the same period in 2018 — the last measure not affected by the pandemic or diesel emissions litigation costs. BMW’s margin reached almost 16 per cent, up from 8.6 per cent.

Daimler’s Wilhelm said that while the chips shortage has artificially lifted prices, “one day or another the semis issue will be gone and we will carry on with the price, and the margin, and the mix focus”.

Signs that pricing power is proving sticky for luxury carmakers comes as central banks remain alert for signs of inflation as the global economy rebounds.

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

With reporting by Martin Arnold in Frankfurt

Source link

Related posts

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More

Privacy & Cookies Policy