Due to the ongoing semiconductor crisis, manufacturers such as Mercedes-Benz and BMW have had to restrategise their product line-up to meet the increasing customer demand. Despite the pandemic not being over, consumers are finding themselves in a financial condition to start splashing out on these products.
According to a report from Financial Times as reported by Motor1, the semiconductor shortage could be considered as a blessing in disguise by both Mercedes-Benz and BMW. The two premium German brands have come to understand that potential customers are willing to pay more money for newer products and are willing to wait an extended time for delivery.
As a result of this, the two manufacturers could be looking at switching focus to bigger and more expensive cars that target higher profit margins rather than rely on traditional volume-based products in more compact segments. The goal is to sell fewer cars but make more money.
Harald Wilhelm, Chief Financial Officer at Mercedes’ parent company Daimler, admitted that “we will consciously undersupply demand level[s], and at the same time, we [will] shift gears towards the higher, the luxury end.”
This was echoed by Nicolas Peter who holds a similar role at BMW, who says that the brand has “seen a significant improvement in pricing power in the last 24 months” and the plan is “clearly to maintain… the way we manage supply to maintain our pricing power on today’s level.”
The two manufacturers now understand that consumers are willing to pay more money for luxury products, which is why they will not be reducing prices once the semiconductor supply chain stabilises.
Bernstein analyst Arndt Ellinghorst says reducing discounts by one per cent can boost profits across the car industry by $20 billion (approximately R285 million). He went on to mention discounts have gone down by more than two per cent in the United States and Europe compared to the high levels available before the pandemic.
Those who plan to get a solid deal on a new Mercedes-Benz or BMW once the microchip shortage will end will likely be let down. “One day or another, the semis issue will be gone and we will carry on with the price, and the margin, and the mix focus,” confirms Wilhelm.
“Customers are ready to wait three to four months, and this is helping our pricing power.”