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BMW and Mercedes want to keep prices inflated even after chip crisis is over - report

Published Sep 13, 2021


MUNICH - In a relatively short space of time the world automotive market has gone from a situation of oversupply and pandemic-related low demand, to a scenario where demand has bounced back but new cars are in short supply thanks to the semiconductor chip shortage.

Although the chip shortage is bad news for the industry as a whole, there has been a silver lining for car companies in that the supply-demand situation means they no longer have to discount cars. In fact, buyers who really want cars seem to be willing to pay more and this is especially true at the premium end of the market.

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In fact, it appears that Mercedes-Benz and BMW are keen to keep their prices inflated even after the chip crisis is over, as part of a broader move upmarket for the two German brands.

Mercedes CFO Harald Wilhelm recently told Financial Times that the company planned to “consciously undersupply demand levels” while also shifting gears towards the higher end of the market.

According to the publication BMW’s financial chief said he’s also keen to maintain the way the company manages its supply in order to maintain the current “pricing power” that it has enjoyed in recent times.

According to Insider Voice, discounts offered in mature markets, which often amount to around 15 percent, have been drastically reduced, and some cars are even selling above the list price.

This can add up to significant profits for the carmakers. According to industry analyst Arndt Ellinghorst, even a 1% drop in the average discount rate could boost profits by up to $20 billion (R284bn) for car companies.

The more premium price positioning is already being seen in South Africa.

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The new Mercedes-Benz C-Class is significantly more expensive than its predecessor.

Mercedes recently opened the order books for the new-generation, locally-built C-Class and pricing starts at R856 080, which is a significant premium over its rivals. It’s also more than double what the previous generation started at (R415 900) when it was launched in 2014.

But when will the chip crisis end?

Speaking at the recent IAA motor show in Munich, Mercedes-Benz CEO Ola Källenius said that while the company is hopeful its own supply will improve in the fourth quarter, soaring demand for chips means the industry could struggle to source enough of them into 2023 - though the shortage should be less severe by then.

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"Several chip suppliers have been referring to structural problems with demand," Källenius said. "This could influence 2022 and (the situation) may be more relaxed in 2023."

Joerg Burzer, head of supply chain at Daimler's car making unit Mercedes-Benz, said he was hoping the situation would stabilise in the fourth quarter. "Relaxation will come later."

Carmakers from General Motors to Mahindra and Toyota have slashed output and sales forecasts due to scarce chip supplies, made worse by a Covid-19 resurgence in key Asian semiconductor production hubs.

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Renault CEO Luca De Meo said last week that the chip shortage had been tougher than expected during the current third quarter, but said the situation should improve in the fourth quarter.

Major auto supplier Bosch said it expects the shortage will ease somewhat in the coming months, but supplies will remain constrained into next year.

IOL & Reuters

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