Several factors have combined to push car inventories low and prices to record highs throughout 2021. Some automakers plan to keep them there. A new report says that two of Germany’s more prominent luxury automakers plan to keep inventories low even after the crisis resolves.

 

A supply crisis all year

A worldwide shortage of microchips has hobbled car factories this year. Most new cars contain more than 100 of the tiny processors, controlling everything from engine performance to Bluetooth phone connections. But the chips are in short supply globally.

Automakers trimmed their orders for chips as the Covid-19 pandemic limited new-car shopping last year. But consumers went on an electronics buying frenzy to accommodate working and attending school from home. As car sales began to rebound, chipmakers had no excess capacity to build new chips for car companies. That has left factories slow, inventories low, and prices high.

Analysts don’t expect the situation to ease until late 2022 or even early 2023. But, when it does, some automakers may not return to their old practice of sending plenty of inventory to dealership lots.

 

‘We will consciously undersupply demand’

BMW Chief Financial Officer Nicolas Peter said the automaker plans to "clearly stick with … the way we manage supply to keep our pricing power at the current level."

Mercedes-Benz parent Daimler AG has the same idea. "We will consciously undersupply demand level," Daimler’s CFO Harald Wilhelm said. The company will "shift gears towards the higher, the luxury end," he added.

The two German companies are not alone. General Motors Chief Executive Mary Barra told reporters in May the company would "never go back to the level of inventories that we held pre-pandemic because we’ve learned we can be much more efficient."

 

Falling incentives

Some automakers had begun deliberately reducing their inventories before the chip shortage began. That approach allows dealers to discount cars less. Before the pandemic, Kelley Blue Book data show, incentives made up 10.9% of the average new-car transaction. At the end of August, they made up just 5.9%.

American buyers are accustomed to buying a car from what their local dealership has in stock and driving it home the same day. But BMW’s Peter said that the pandemic has proven "customers are ready to wait three to four months, and this is helping our pricing power."