Volkswagen car factory in the German city of Dresden.Liesa Johannssen-Koppitz / Bloomberg
The bottlenecks in the supply of semiconductors are again strangling European vehicle manufacturing. Delivery times are at their worst since the crisis broke out at the end of last year, according to financial group Susqueshanna. As if that were not enough, the outbreaks of coronavirus in Malaysia, a relevant link in the microchip production chain, have exacerbated the problem. Even so, and although condemned to contain their assembly lines, European brands are successfully crossing the storm: not only is there no visible impact on their income statements, but, except for Renault, all earn more than before the pandemic .
The good results are the reflection of several factors. The first is that global sales have recovered from last year. The second, that manufacturers have implemented spending cut programs since 2018 that are now bearing fruit. And the third, and according to analysts the main one, is the fact that manufacturers are applying sales policies focused on the most expensive cars. Higher-end or more equipped vehicles are successfully sold to individuals.
According to the consulting firm AlixPartners, with data up to the first quarter of the year, the average cost per vehicle has risen by $ 1,700, taking into account an analysis among the 25 largest manufacturers. In Spain, according to data from the Faconauto dealer association, the average price was 30,670 euros per car. The big jump did not occur compared to last year, when it barely grew by 5%, but compared to 2019. Since then, the average price has climbed more than 11%.
At the same time, car rental companies have ceased to be a priority for brands, despite the fact that at certain times, at least in Spain, their purchases had soothing effects when sales were plummeting. The reason is that they are buyers of vehicles without any add-ons, those with the lowest price range, whatever the vehicle segment: they ensure volume but on account of reducing margins per vehicle. The result of this sales limitation has been seen in the main tourist destinations: there is pressure due to the lack of cars in the rental companies, which in the middle of the coronavirus crisis frozen the rotation of their fleets.
“We have never had so little sales quota in rental companies,” explains the manager of a French brand present in Spain, to visualize the change in strategy in which manufacturers have been immersed, forced to carry out an exercise that combines marketing and logistics . It is to the assembly lines of the most profitable models that they prioritize the arrival of the limited semiconductors that their suppliers send them. The problem is to what extent a less profitable car can be controlled without condemning it to extinction before normality returns.
The managing director of the investor service of the Moody’s agency, Anke Rindermann, considers that the price policy “is the great value” at this time for manufacturers, in what represents a radical departure from the solution in previous crises. “It is very different from the recoveries that were seen after the sovereign debt crisis or the financial crisis. Then there was interest in volumes and now in prices to obtain the highest margins ”, he says. He points out that the change has resulted in marketing “large cars, urban SUVs, electrified and hybrids, in which there may even be incentives from the Government.”
José Antonio Bueno, consultant and partner of Metyis, abounds in the fact that the good numbers that European manufacturers handle show that this “is a crisis that can be reasonably predicted, with factories being able to work at full capacity some days and close others”. Likewise, it explains that the market situation “does not make self-registration or the generation of inventories recommendable.” In addition to aid for the purchase of electric cars, manufacturers have also benefited from subsidies from programs equivalent to temporary employment regulations.
The largest European manufacturer, Volkswagen, posted a profit of 8,454 million euros in the first half, leaving behind the losses of the same period of the previous year and improving by 18% those of 2019. Daimler has multiplied its profits since then. And Stellantis, which this year has released accounting after the integration between PSA and FCA, has surprised analysts with better returns than the same group had set itself as a target. He made 5.8 billion through June.
The problem of keeping margins up
Despite this significant increase in profits, none of these groups entered by sales more than two years ago. The exception to the rule is BMW, the group that is emerging with the best results from the labyrinth that the microchip crisis has become. Recognized for its strong ties with its suppliers, the German high-end car manufacturer already sells more than in 2019 (up 15%) and has managed to skyrocket its profits by 276%.
Anke Rindermann believes that the industry will be able to keep profitability levels in a safe position. What will be more difficult, he says, will be to maintain the levels of improvement, since “there is a limit”, also because their costs will be pressured by the increase in the price of raw materials and energy. In addition to the benefits, which allow to continue feeding pending investments in electrification and the launch of new models, the current situation is helping to increase the share of electric and hybrid cars, which in turn means avoiding fines from the Administrations.