The Rising Prices of New and Used Cars: How Automakers Changed Strategies for Greater Profits

They changed their strategies in search of greater profits

New cars rose in price by 17% in two years, and used cars by 32%

They sell less units but more expensive

The turning back of time has affected not only society as a whole, but also the most important industry in Germany – the automotive industry. We see stalled assembly lines and falling sales on the one hand, and rising profits on the other, writes Helmut Becker for N-tv.

The reason for this is simple: cars have become unusually expensive over the past two years. In the minds of customers looking to buy a new car, owning a car threatens to become a luxury beyond the reach of the average worker.

In just two years alone, from December 2020 to March 2023, new car prices rose by 17% and used cars by 32%, i.e. by almost a third.

Thus, over the past two years, new and used cars have become the main inflationary factors, surpassed only by energy and food. According to Wiesbaden statisticians, overall consumer prices increased by 17% over the same period. As a result, all car buyers – new or used – inevitably found themselves in a difficult position. Because during the same period wages only increased by about 10% and real wages fell by about 8%.

The declining purchasing power of car buyers contrasts with rapidly increasing profits for manufacturers despite falling sales. According to Automobilwoche, global car sales are set to fall by 2.7% in 2022. However, the industry posted record profits because it was able to push prices high.

Sales of the largest car manufacturers increased by 18% in 2022 compared to the previous year to 1.87 trillion euros. In 2022, Volkswagen leads the world in revenue and profit, but in terms of sales, the group is slipping. In terms of revenue, Volkswagen topped the industry rankings with 279 billion euros, ahead of Toyota with 258 billion euros and Stellantis with 180 billion euros.

Sales champion among German premium brands is BMW with 2.4 million sales, followed by Mercedes with 2.1 million sales and Audi with 1.8 million sales. For German luxury manufacturers, the decline in sales that began in 2019 continued, while the profit margin per car sold increased. As a result, record profits were achieved in 2022: Audi reported a profit of 7.1 billion euros, Mercedes-Benz – 14.8 billion euros, and BMW – 18.6 billion euros.

The reasons for the profit explosion are simple: for the first time in many decades, brand new cars were in short supply. All manufacturers had to contend with the consequences of the pandemic, the unusual shortage of materials, especially chips. Prices rose amid tight supply. Search allowed this to happen. The price wave spread even more strongly in the used car market.

Smart managers quickly realize that in the past they paid close attention to Harvard seminars on sales and profit optimization. In view of the scarcity of strategic parts, they have preferred to produce the expensive models. Everyone switched to a strategy of high prices, where the margins are the largest. Until 2019, in view of the high saturation of the car markets and fierce battles with discounts for market share, the maxim was: mass at any cost. Now everyone turned to the new imperative: money instead of table!

Fortunately, market forces are at work again. There are already signs that the period of excessive increases in new and used car prices is coming to an end. Car production capacity has improved significantly. The market is once again in the process of turning: From a seller’s market, where producers dominate, to a buyer’s market, where customers are king. In addition, Chinese manufacturers are entering Europe with small and cheap electric cars, causing excitement among local leaders.