BMW and Daimler pledge to maintain high prices after the chip crisis ends

[ad_1]

Car update

Automakers Daimler and BMW plan to limit shipments of their high-end models after the industry-wide chip shortage eases to lock in the substantial price increases they achieved during the pandemic.

Just as consumer demand rebounded from repeated lockdowns, from electronic windows to driver assistance systems, cars rely on a chronic shortage of semiconductors, which hindered the supply of cars.

Although before Covid-19, German luxury automakers had moved away from the volume-based approach, customers were willing to pay higher prices during the pandemic, which made them more courageous to go further.

“We will consciously supply insufficient demand levels[s],” Daimler CFO Harald William told the Financial Times, “At the same time, we [will] Shift gears in a higher and more luxurious direction. “

Nicolas Peter, BMW’s chief financial officer, stated that “BMW’s pricing power has improved significantly in the past 24 months.” The Munich-based automaker’s plan is “obviously to maintain… the way we manage supply to maintain our pricing power at today’s levels,” he added.

Industry executives, car dealers and analysts said that the chip shortage stems from competition for limited semiconductor supply between the automotive and consumer electronics industries, which will herald new methods of pricing and selling high-end models.

Bernstein analyst Arndt Ellinghorst said: “This pandemic is really eye-opening for everyone-a different paradigm is possible.” “Everyone likes it, including dealers.”

The discounts normally offered to customers at dealerships—usually around 15% in mature markets—have been significantly reduced, with some models priced higher than the list price.

Ellinghorst said that a 1 percentage point reduction in average discounts would bring automakers US$20 billion in additional profits, while discounts in Europe and the United States have dropped at least twice from their pre-pandemic peaks.

BMW’s Peter said that the group’s US dealers “always claim… well, we need cars in the showroom. The customer wants to show up at 10 o’clock on Saturday morning, and he wants to finish all work by 1 o’clock at the latest. And fix the license plate on the car.”

However, now they say “Customers are prepared to wait three to four months, which helps our pricing power,” he added. “Of course, the waiting time cannot be too long, but if you buy a high-end car like BMW, it is an emotional decision… I believe that the short waiting time will make the customer experience bigger and better. “

Enhanced pricing power has affected the bottom line of BMW and Daimler. Mercedes achieved a return on sales of 12.2% in the last reporting quarter, higher than the 8.4% in the same period in 2018-this is the last measure not affected by the pandemic or litigation costs for diesel emissions. BMW’s profit margin rose from 8.6% to nearly 16%.

Daimler’s Wilhelm said that although chip shortages have artificially raised prices, “the problem of semi-finished products will one day disappear, and we will continue to focus on prices, profit margins and mixed priorities.”

As the global economy rebounds, central banks remain vigilant against signs of inflation, and there are signs that pricing power is sticky to luxury car manufacturers.

The European Central Bank raised its inflation forecast for this year to 2.2% this week, but it is expected to fall below the 2% target next year and remain at only 1.5% in 2023.

Martin Arnold reports from Frankfurt

[ad_2]

Source link