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

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Carmakers Daimler and BMW plan to limit the number of high-end models they ship even as industry-wide chip shortages ease, in an attempt to stem the massive price hikes they’ve already achieved. during the pandemic.

Chronic shortages of semiconductors, on which cars depend for everything from electronic windows to driver assistance systems, have hampered vehicle supply as consumer demand rebounds after car lock multiple times.

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

“We will have a sense of the extent to which supply is not meeting demand[s]”, Harald Wilhelm, chief financial officer of Daimler told the Financial Times, “at the same time we [will] Shift gears towards higher, ultimate luxury. “

Chief Financial Officer Nicolas Peter said: “BMW has seen a significant improvement in pricing power over the past 24 months. The Munich-based automaker’s plan “obviously has to be maintained. . . how we manage supply to maintain our pricing power at current levels,” he added.

Executives, car dealers and analysts say the chip shortage, which has its roots in competition between the auto and consumer electronics industries for limited supplies of semiconductors, will report before a new approach to pricing and selling premium models.

“The pandemic has really opened people’s eyes – that a different pattern is possible,” said Arndt Ellinghorst, an analyst at Bernstein. “Everybody loves it, including the dealers.”

The discount normally offered to customers at dealerships – typically around 15% in mature markets – has been slashed, with some models selling for more than the sticker price.

According to Ellinghorst, a one percentage point drop in the average discount would free up an additional $20 billion in profits for automakers, and discounts in Europe and the US have fallen by at least twice that amount. with their pre-pandemic peak.

BMW’s Peter said that the group’s dealers in the United States, “always claimed. . . We need the cars in the showroom, the customer is expected to arrive at 10am on Saturday, and he wants to leave with everything finished, the number plates fixed on the car by 1 hour at the latest. afternoon. “

Now, however, they say “customers are ready to wait three to four months, and this is helping us raise prices,” he added. “Of course the waiting time is not too long, but if you buy a high-end car like a BMW, it is an emotional decision. . . I believe having a short wait time is something that makes the customer experience even better and better. “

The increased pricing power has hurt the profits of BMW and Daimler. Mercedes posted a 12.2% return on sales in the last reported quarter, up from 8.4% in the same period in 2018 – a last resort unaffected by the pandemic or litigation costs. diesel engine emissions. BMW’s profit margin is close to 16%, up from 8.6%.

Daimler’s Wilhelm says that while the chip shortage has artificially inflated prices, “one day or another, the problem of the half-term will be gone and we will continue with prices, profits and weights.” mixed center”.

Signs that pricing power is faltering for luxury automakers come as central banks remain vigilant for signs of inflation as the global economy recovers.

The European Central Bank this week raised its inflation forecast for this year to 2.2%, but predicts it will fall back below its 2% target next year and stay at just 1.5%. in 2023.

With Martin Arnold reporting in Frankfurt

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