The customer is no longer king: is the car a luxury good?


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The customer is no longer king
Is the car a luxury good?

By Helmut Becker

After the end of the Corona crisis, the car companies are waiting for record profits. This particularly pleases the shareholders of VW, BMW and Co. Car buyers, on the other hand, are poorly off – regardless of whether they are new or used cars.

Based on the most important key figures of the German automobile manufacturers in the last two years, the conclusion is that the turning point has not only affected society as a whole, but also the most important industry in the country. Completely new challenges and burdens, above all stopped assembly lines and declining sales figures on the one hand, increasing profits up to records on the other. When has there been such a contradictory picture in the key industry in the last few decades?

The reason for this asymmetrical development is simple: automobiles have become unusually expensive in the last two years. In the perception of customers who wanted to buy a new car, their own car threatened to become a luxury item, which is slowly but surely becoming unaffordable for average earners.

The statistics speak volumes: Within just two years, from December 2020 to March 2023 to be precise, the prices for new cars have risen by 17 percent. Those for used cars even climbed by 32 percent, i.e. by almost a third. New cars are more expensive than ever. The rise in prices for used vehicles has reached an unprecedented pace.

declining purchasing power

As a result, new and used cars have become the main drivers of inflation over the past two years, surpassed only by energy and food. According to the calculations of the Wiesbaden statisticians, consumer prices as a whole increased by 17 percent in the same period. All buyers of cars – new or used – inevitably found themselves in a tight spot. Because in the same period, wages increased by only around ten percent, while real wages fell by around eight percent.

Falling purchasing power among car customers was offset by rapidly increasing profits despite declining sales at car manufacturers. That was true worldwide, but it was particularly pronounced among German manufacturers. According to “Automobilwoche”, global car sales fell by 2.7 percent in 2022. Nevertheless, the industry posted record sales and profits because it was able to push through high prices. Compared to the Corona crisis year 2020, the sales of the car companies have increased by almost a third, and profits have even tripled.

VW sets two exclamation marks

The sales of the largest car manufacturers increased in 2022 compared to the previous year by 18 percent to 1.87 trillion euros. In 2022, Volkswagen was ahead worldwide in terms of sales and profits, but the group slipped in terms of sales. In terms of sales, Volkswagen led the industry ranking with 279 billion euros, ahead of Toyota with 258 billion euros and Stellantis with 180 billion euros.

BMW remained the sales champion among German premium brands with 2.4 million sales, followed by Mercedes with 2.1 million and Audi with 1.8 million sales. For the German luxury manufacturers, the decline in sales that has been ongoing since 2019 has continued, while the profit margin per vehicle sold has increased. As a result, all three manufacturers achieved record profits last year: Audi reported 7.1 billion euros, Mercedes-Benz 14.8 billion euros and BMW 18.6 billion euros.

it can be so easy

The reasons for the explosion in profits are simple: on the one hand, brand-new automobiles were in short supply for the first time in many decades. All manufacturers worldwide had to contend with the consequences of Corona, unusual material shortages, especially for memory chips, and serious disruptions in the supply chains. The latter mainly with the main supplier China. After stocks of new cars were cleared, prices shot up when supply was tight. The demand allowed it. The price wave spilled over even more strongly into the used car market, with the result that there – from a low level – the prices for used cars rose twice as fast as for new cars.

On the other hand, clever car managers very quickly showed that they had paid close attention in the Harvard seminars on sales-profit optimization: In view of the shortage of strategic parts, they preferred the high-priced model series in production. The low-yield lower mass segments, on the other hand, were gradually thinned out, with long waiting times.

All of them switched to the high-price strategy, to where the margins were and are the largest. In view of the high level of saturation in the car markets and fierce discount battles for market share, the maxim up until 2019 was: mass at any price. Now everyone has turned to the new strategic imperative: Cash instead of mass! The even scarcer and more expensive electric cars were preferred. The lack of memory chips made it possible.

The average Otto customer falls by the wayside

Those who suffer are and still are the car customers with small and medium-sized budgets, who fall by the wayside with this strategy. The public fear is already spreading that automobiles could become a luxury. The individual use of one’s own car, especially if it is electric, becomes an exclusive pleasure for high-income groups.

Fortunately, market forces are at work. There are now increasing signs that the period of exorbitant price increases for both new and used cars is coming to an end. Car production and the ability to deliver have improved significantly everywhere – with the exception of Audi, which has short-time work due to production losses.

Compared to the previous year, the rates of increase in car prices in March 2023 are now back to plus minus zero. So the market is about to turn around again: from the seller’s market, where manufacturers dominate, to the buyer’s market, where car customers are once again king. The first car discounts are returning and on the electric side, Tesla has stirred up the car market with aggressive discount campaigns. In addition, Chinese car manufacturers are on the move with small and cheap electric cars in Germany and are making the local top dogs excited.

However, all this means that the losses in “car purchasing power” for the average Otto consumer will not be greater for the time being. However, the existing gap will remain for the time being.

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