Munich Due to a lack of semiconductors, the German auto industry built fewer cars in 2021 than it has in 46 years. Nevertheless, Mercedes-Benz, the BMW Group and the Volkswagen Group with its subsidiaries Porsche and Audi are expecting record results.
The reason: The corporations take smaller models out of the program and build larger and more expensive cars with the few available chips – and also find customers for them. “Larger models are popular. People want to treat themselves to something because of the Covid pandemic,” says Audi boss Markus Duesmann in an interview with the Handelsblatt.
After the small car A1, Audi also wants to discontinue the compact SUV Q2, but will develop additional luxury models. “We will limit our range of models downwards and expand upwards,” says Duesmann. In the VW Group, Audi and Porsche are preferred when it comes to supplying semiconductors anyway – because they earn more money with their models.
Mercedes is also pursuing a similar strategy. The Stuttgart paint the compact B-Class and rely more on the S-Class, the luxury offshoot Maybach and the sports subsidiary AMG. BMW has also doubled sales of its top models, such as the X7 and the 8 series, over the past two years and – like its competitors – is offering practically no discounts. Even mass manufacturers like Renault and Stellantis want to build more high-priced cars in the future.
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Due to the luxury course of the industry, cars are becoming more and more expensive. In 2010, an average new car in Germany cost around 25,000 euros, in 2021 the average price rose to 37,400 euros according to calculations by car expert Ferdinand Dudenhöffer, and the trend is upwards. Because the cars are not only getting bigger, they have more powerful engines and are better equipped. Added to this is the trend towards hybrid and electric drives, which are significantly more expensive than combustion engines.
Discounts are largely history
For four years now, manufacturers around the world have been building fewer cars than customers are asking for – the shortage of semiconductors is exacerbating the trend: the warehouses are empty, and the VW Group in particular has had to register short-time work again and again because electronic components for controlling motors, sunroofs or Seat adjustments are missing. At the same time, car manufacturers put off their customers with long delivery times. But they also capitalize on the situation.
“At the moment we are seeing very high prices, and the manufacturers have no problem enforcing them,” says Daniel Schwarz, an analyst at the investment bank Stifel.
The corporations and their dealers have massively scaled back the discount battles that are otherwise common in the industry. This is clearly visible in the USA, for example. According to calculations by the analysis company JD Power, price reductions of an average of 1300 dollars per vehicle were recently granted here. For comparison: A year ago it was still 3500 dollars, two years ago even 4100 dollars. In the USA, too, cars are now more expensive than ever – on average, a new car costs around 45,000 dollars.
A trend that will continue. At least that’s what the manufacturers expect and rely on the high-price strategy. From the point of view of the corporations, this is necessary because the costs for metals and plastics, but also for energy and personnel, are rising sharply. With poorly equipped compact cars and offers for the middle class, these costs can hardly be recovered. “We prioritize other segments,” says Audi boss Duesmann, explaining the impending end of the small SUV Q2, which was only introduced in 2016.
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Planting is preferred at the top. Audi’s electric limousine with the project name “Landjet” announced for 2025 will have a sister model with the “Landjacht”. Bentley and Porsche also want to derive new luxury sedans from this project.
Yacht building as a model
It’s similar at BMW. After the success of the giant SUV X7, the Munich-based company announced an X8. At the end of the year, the new 7-series should further boost sales in the luxury segment. In this segment, the business is similar to yacht building, said a group manager recently. The equipment is becoming more and more individual and complex, but also more profitable for BMW.
Mercedes had already proclaimed the credo in early summer 2020: class instead of mass. Since then, the brand with the star has focused on offering only luxury vehicles in each segment. Unprofitable compact cars like the B-Class are sorted out. And the Smart, once the smallest make in the Swabian portfolio, will be converted into an SUV.
The reason: Mercedes boss Ola Källenius does not want to be crushed in price competition with volume manufacturers in the future, but rather generate double-digit returns on sales with luxury cars.
The chip crisis has recently accelerated this orientation. After all, the Dax group, like the rest of the industry, has prioritized all available semiconductors in those series that promise particularly high profit margins. And the demand there is immense.
Mercedes recently even had to impose an order freeze for its G-Class. Production in Graz is stretched to capacity for years to come just to process the existing orders for the off-road vehicle. AMG sports cars are also more popular than ever. The performance subsidiary of Mercedes sold around 146,000 cars last year – an increase of 17 percent. Maybach also reports new records. The noblest of all Mercedes sub-brands recorded a sales increase of 51 percent in 2021 with 16,000 vehicles delivered.
This leads to a curious situation. Although Mercedes deliveries shrank by five percent overall last year, the group is making more money than ever.
More: Audi boss Duesmann relies on luxury – “People want to treat themselves”