Munich, Dusseldorf 40 billion euros. That’s how much money Volkswagen, Mercedes-Benz and BMW earned together from January to September. The net profit of the three German car giants increased by a third compared to the previous year. The industry is heading for a record year – although it is selling fewer and fewer cars.
Production is interrupted again and again due to a lack of semiconductors. However, manufacturers are making clever use of the shortage: they are building more luxury models and raising prices. The VW premium subsidiary Audi alone has raised its list prices four times in a year and a half.
According to calculations by the Center Automotive Research (CAR), a new car in Germany now costs around 41,300 euros on average. That is a quarter more than five years ago.
Experts are already warning that cars are in danger of becoming luxury goods: “If we are not careful, many people could be completely forced out of new car ownership,” said Simon Schnurrer, partner at Oliver Wyman, the Handelsblatt. In the first step there will be segment shifts.
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“Someone who has always been on the road with the latest Golf generation may in future drive a size smaller.” And those who worry about their job and heating costs may soon even have to do without their own car altogether. A quick improvement in the situation is not in sight.
Small cars and entry-level models are deleted
“Prices will continue to rise,” predicts Ferdinand Dudenhöffer, head of the CAR Institute. The longtime industry expert observes a drastic change in the market. “In almost all segments, drivers are getting out of the car or, to put it better, switching to the SUV,” states Dudenhöffer.
“In almost all segments, drivers are getting out of the car or, to put it better, switching to the SUV.” Ferdinand Dudenhöffer, head of the CAR Institute
According to his calculations, 43 percent of new cars in Germany are now sporty off-road vehicles. “Without an SUV, nothing works, and SUVs are of course more expensive than models like the VW Golf or classic sedans.”
But the reasons for the increasingly expensive new cars lie deeper. On the one hand, the car manufacturers pass on the increased costs for energy, raw materials and wages to the customers. On the other hand, more and more manufacturers are thinning out their range of low-margin small cars and inexpensive basic equipment.
For example, VW only offers the entry-level version of its bestseller Golf with 130 hp instead of 90 hp. According to an analysis by the ADAC, this alone resulted in a price increase from 20,700 to 29,560 euros within one year. In the medium term, a whole range of compact vehicles will also disappear completely. Mercedes will discontinue the A-Class and B-Class around 2025. Audi is canceling the A1 as well as the Q2, and Ford says goodbye to the Fiesta.
In addition, the manufacturers hardly grant any discounts. “We managed to bring the incentive level down to a very low level,” rejoiced Nicolas Peter, CFO of BMW, on Thursday. Despite the deteriorating economic outlook, his group is able to continue to achieve “good prices” on the market.
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Harald Wilhelm, CFO of Mercedes-Benz, recently made a similar statement. “We definitely have no intention of lowering list prices, and we have no intention of increasing rebates.” In order to defend his company’s high margins, the manager would rather cut production volumes in the event of a sharp recession to grant discounts on the vehicles with the star logo.
Car ownership could split the middle class
“The car is increasingly becoming a symbol of social division,” says a high-ranking manager at a German car manufacturer. While some are affording ever larger and more expensive bodies, for many normal and low earners only used vehicles are an option that hardly meet the environmental requirements.
“If car ownership is suddenly only possible for rich people, that’s a dangerous thing,” BMW boss Oliver Zipse recently warned against this background.
Carlos Tavares, CEO of Stellantis, the world’s fourth-largest carmaker, which also owns the traditional Rüsselsheim company Opel, has been pointing out for years that the high costs of battery-electric cars may be falling too slowly. There is a risk of a scenario in which even many middle-class households will no longer be able to afford a new car.
VW only offers the entry-level version of its bestseller with 130 hp instead of 90 hp.
(Photo: imago images/Jan Huebner)
Advisor Schnurrer is critical of the partial withdrawal of car manufacturers such as Mercedes or Audi from the lower vehicle segments. “The danger here is that the economies of scale drop to the point that important suppliers consider you secondary,” says the Oliver Wyman car specialist. “Especially with semiconductors or battery cells, the willingness to listen increases significantly when you bring large sales volumes with you.”
Manufacturers of premium cars are better able to cope with the ongoing inflation. Your customers are more solvent and buy the vehicles despite rising prices. Mass manufacturers, on the other hand, are less flexible, and their customers don’t have as easy money.
Ford and Seat also want to be classy and expensive
Nevertheless, volume manufacturers are also participating in the trend towards higher positioning. Example Ford: The European subsidiary of the US group is removing the small cars from the model range and only wants to sell larger cars in the electric age. “Our focus is on fewer, but high-volume, profitable segments,” said Ford passenger car boss Martin Sander recently in an interview with the Handelsblatt.
“With a Cupra Formentor, the profitability is about four times higher than with the small Seat Ibiza.” Seat CEO Wayne Griffiths
Ford Europe has posted billions in losses in recent years. The new model strategy should guarantee permanently black figures.
The Spanish Volkswagen subsidiary Seat has also often enough missed the profit zone in the past. That’s why Seat created the new second brand Cupra and positioned it in a significantly higher vehicle segment. “With a Cupra Formentor, the profitability is about four times higher than with the small Seat Ibiza,” says Seat CEO Wayne Griffiths.
Mass manufacturers such as the Volkswagen Group are faced with the basic problem that there are almost no real electric cars in the entry-level and small car segment. At VW, the Polo as a combustion engine has been a fixture for decades. So far, however, the Wolfsburg car manufacturer has not managed to bring a corresponding electrical counterpart onto the market.
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The batteries are still far too expensive. For the year 2025, VW is planning the electric counterpart to the Polo. “At an entry-level price of well under 25,000 euros,” promises Volkswagen brand boss Thomas Schäfer. Then there should be the cheaper batteries with a new chemical composition that allow an economically viable small electric car.
However, the small electric car planned by VW will not be a bargain even with the cheap battery. The entry-level price of the Polo with a petrol engine is currently less than 20,000 euros. Volkswagen will not reach this mark with the entry-level electric model.
In addition, established car manufacturers in the electric segment have to fear new competitors from China. Manufacturers such as Great Wall, BYD, Nio and SAIC are now also pushing into Europe. They produce inexpensively, especially the smaller models. “Chinese car manufacturers could also set up their own production in Europe very quickly,” predict the analysts from the market research company LMC Automotive.
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