VW Americas CEO sees chip shortage lasting into 2022, but industry protecting margins

3:02 pm Wednesday, December 08th, 2021

By Ben Klayman

DETROIT (Reuters) – Volkswagen AG’s Americas chief sees the global chip shortage lasting into the third quarter of next year, but believes the auto industry will maintain the discipline that has led to strong vehicle pricing and corporate profits even when the flow of semiconductors returns to normal.

The COVID-19 shutdown last year and the subsequent chip shortage reduced vehicle inventories, but also resulted in strong profits for most companies. VW Group of America Chief Executive Scott Keogh is optimistic the industry can maintain those profits without returning to past bad practices.

    “When the market springs back, it’s not going to hold obviously exactly the way it is,” he said in an interview. “It will grow more competitive, but directionally the trend that started with the housing crisis, that carried through COVID and the chip shortage, will hold true.”

“There’s probably no better industry at destroying margin value than the automotive industry,” Keogh added. “They get into these price wars and everything goes to seed. I lean more optimistic.”

    He thinks executives don’t want to return to the days of high new-car inventories, massive retail discounting and flooding the rental market.

    “Granted, one rogue actor can certainly throw a wrench into the machine,” Keogh said. “Companies are looking at their factories and looking at their balance sheets and saying, ‘We figured out a way to make it work’.”

VW brand new-vehicle sales in the United States were up more than 21% through November as the industry rebounded from the shutdown last year, but growth will be lower in 2022 at the more normalized rate as the chip shortage lasts at least through the third quarter, Keogh said.

He said the U.S. auto industry rebound will be more gradual, which will encourage carmakers to maintain their discipline on production and pricing. That being said, he does see the increase in new-vehicle prices moderating as chip production stabilizes and carmakers ease their focus on their highest-margin sellers. “Pricing is not infinite,” Keogh said.

Another factor that will force carmakers to maintain pricing discipline is the rollout of electric vehicles, where companies must drive down prices to attract buyers while at the same time maintaining a profit margin, he said.

(Reporting by Ben Klayman in Detroit; Editing by Kirsten Donovan)