Dusseldorf Most automakers should really be facing tribulation. Because of the ongoing shortage of chips, production figures have collapsed almost everywhere. For example, Volkswagen did not produce 400,000 cars at the main plant in Wolfsburg last year. Under normal circumstances, the capacity there is more than twice as high.
Despite the low production figures, the car manufacturers are largely calm. The main reason: the chip crisis also pushed prices up.
New cars were in short supply around the globe in 2021 due to falling production figures – and then the car markets functioned according to the very simple rules of supply and demand. Most manufacturers were able to raise their prices several times in the past year – and this trend is likely to continue in 2022.
“Surprisingly, almost all car manufacturers are likely to increase their operating profit compared to 2019,” expects Frank Schwope, automotive analyst at NordLB in Hanover. He definitely believes that BMW, Daimler, Toyota and Tesla will achieve record results.
Volkswagen could also set a new record – despite a sales decline of around 18 percent compared to 2019, the last comparatively normal year before the outbreak of the corona pandemic. In February, the US corporations first submit their annual financial statements, followed by the German manufacturers.
For a number of automakers a “dream situation” has arisen because they can also forego costly discount campaigns, which in the past resulted in significant profit losses, says Schwope. The structural bottleneck in semiconductors could persist until 2023. The high profits in the automotive industry are therefore likely to remain in place for a longer period of time.
“At the moment, the automobile manufacturers are benefiting twice from the scarce supply situation,” adds Dietmar Voggenreiter from the Horváth management consultancy and previously Board Member for Sales at the Volkswagen subsidiary Audi. He confirms the development that the level of sales aids and discounts for new vehicles has fallen, “so that higher sales can currently be achieved per vehicle”.
“The used vehicle revenues from leasing returns are higher than assumed in the calculation, so that higher revenues are generated here too.”
(Photo: Audi)
Prices for used cars are rising significantly
Voggenreiter also points out that the prices for used cars have increased significantly. The used car market also functions according to the rules of supply and demand. Customers who did not get a new car went to the used car dealer and stocked up there.
The big car companies are also benefiting from the increased prices for used vehicles. “The used vehicle revenues from leasing returns are higher than assumed in the calculation, so that higher revenues arise here too,” emphasizes Voggenreiter, referring to the profitable leasing and financing subsidiaries of the automaker.
This includes the finance division of the Volkswagen Group (VWFS), which announced new records before the turn of the year. “2021 will be the best year ever,” promised VWFS CEO Lars Henner Santelmann.
It is already clear in advance that the operating profit will be above the target of four billion euros issued in the middle of the year, explains the manager. In 2019, before the outbreak of the corona pandemic, the group subsidiary had just achieved an operating profit of 2.9 billion euros. In 2020 it was still 2.8 billion euros under corona conditions.
Because of the rise in used car prices, the usual residual value risks associated with leasing returns suddenly turned into profits last year. The finance and leasing companies like VWFS were able to release their accustomed provisions to a considerable extent because of the high prices for used vehicles.
The VW subsidiary, for example, can take advantage of the trend towards used cars because many of the Group’s own returns from financing or leasing contracts are mostly still very young cars and can be further marketed with high residual values. In addition, the car companies themselves are getting more and more involved in the used vehicles business.
For example, VWFS founded the “Heycar” internet exchange, in which other car manufacturers have now also participated. With its announced operating profit of more than four billion euros, VWFS will have a major role in ensuring that the Wolfsburg-based group can deliver a fairly passable overall result for 2021.
But that doesn’t just apply to Volkswagen. In the USA, General Motors and Ford are happy to have their strong financial subsidiaries. Car leasing is more widespread in the United States than in Europe, so rising residual values are even more noticeable there.
Long waiting times, high profits
Many car companies regret that they have not founded their own finance and leasing division. Stellantis CFO Richard Palmer made it clear in November that his company was preparing to set up such a financial subsidiary, at least in the USA. “This creates an additional source of high profitability in the medium term,” he said.
The automotive analysts at the Swiss bank UBS calculate that the additional book profits of the financial subsidiaries from released provisions “will continue for several months”. The strong earnings development of companies like VWFS is well above what would have been expected under normal conditions in the normal economic cycle. General Motors, Ford, BMW, Daimler and the Volkswagen Group benefited in particular from the high income generated by the financial subsidiaries.
In terms of price dynamics, 2021 is an absolutely exceptional year. Stefan Schneck, Head of Sales for Germany at Autoscout24
The used car exchange Autoscout24 has analyzed the situation for the German market in detail. After that, the prices for used cars reached new highs in the past year. The average price is just under 23,000 euros, an increase of almost ten percent compared to 2020.
“In terms of price dynamics, 2021 is an absolutely exceptional year,” says Stefan Schneck, Head of Sales for Germany at Autoscout24. There has never been such a price increase averaging ten percent.
Schneck blames several factors for this development. Because of the corona pandemic, the desire to have one’s own car has increased – in contrast to public transport, there is no risk of infection in one’s own body.
The other reason is the lack of chips. “The shortage of semiconductors in the automotive industry, which is developing at the same time, can be described as a real price booster,” adds the manager.
Since there were not enough new cars, the car buyers switched to the used car market. “The bottom line is that the demand market for used cars has become a supply market.” All types of drive are equally affected by the price increases.
The order backlog should resolve itself in mid-2022
According to Autoscout24, there have been price increases all over Europe. The average is around eight percent.
In Austria and the Netherlands, prices rose even faster than in Germany.
(Photo: picture alliance / Wolfram Steinberg)
Used car prices in Austria (plus 13) and the Netherlands (plus eleven) have risen even more than in Germany with ten percent. In France with plus two percent and in Italy (plus seven) the upward trend last year was not as strong as the European average.
Deutsche Automobil-Treuhand (DAT), a market research company in the automotive industry, confirms the latest price developments for used vehicles. By autumn 2021, three-year-old gasoline vehicles had achieved 59.3 percent of their former list price, while diesel vehicles were 56.2 percent.
Such high values have never been seen before in the DAT analyzes. Another new feature is that used car prices rose continuously in the second half of the year.
Usually used prices fall slightly in the second half of the year. Because in the auto business, spring is traditionally considered to be the time with the highest demand – and corresponding prices.
The Central Association of the German Motor Vehicle Industry (ZDK), the top interest group for car dealers, expects business to calm down by mid-2022. Initially, the order backlog and the associated long waiting times for new vehicles would then dissolve. After that, the used car market will “gradually normalize”, says ZDK President Jürgen Karpinski.
A slight increase in the used car business in Germany can be expected in 2022. The market is expected to grow from 6.7 to 6.8 million cars this year.
If you want to buy a car right at the beginning of the year and can’t wait until summer, you probably need a little patience and also have to be prepared for higher prices. This applies equally to new and used cars. “We assume that the trend towards high net prices and low car discounts will continue in the first few months of the new year,” expects Ferdinand Dudenhöffer, automotive professor at the Duisburg Institute Center Automotive Research (CAR).
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