VW Predicts Global Chip Scarcity Will Last Until Q3 2022, Even Though The Pandemic Begins To Subside

VW predicts the shortage of chips will continue until Q3 2022. (photo: picabay)

JAKARTA – The head of Volkswagen AG in the United States assessed that the global chip shortage problem will continue until the third quarter of next year. But he believes the auto industry will maintain the discipline that has led to strong vehicle pricing and benefits the company even as semiconductor supplies return to normal.

The lockdown due to COVID-19 last year and subsequent chip shortages, have reduced vehicle inventories, but have also yielded strong profits for most companies. VW Group of America Chief Executive Scott Keogh is optimistic the auto industry will be able to maintain these profits without reverting to bad practices in the past.

"When the market bounces back, it's not going to stay that clear," he said in an interview. "It will grow more competitive, but directionally the trend that started with the housing crisis, brought on by COVID-19 and chip shortages, will remain true."

"Perhaps no industry is better at crushing value margins than the auto industry," Keogh added, as quoted by Reuters. "They are involved in this price war and everything is the seed. I am more optimistic."

He predicts executives don't want to go back to the days with high new car inventories, massive retail discounts, and continued flooding of the rental market.

"Indeed, one bad actor could have thrown a wrench in the machine," said Keogh. "Companies look at their factories and look at their balance sheets and say, 'We found a way to make it work'."

VW's new vehicle sales in the United States were up more than 21% through last November as the industry recovered from last year's lockdown, but growth will be lower in 2022 at a more normalized rate as the chip shortage persists into at least the third quarter," Keogh said.

He said the US auto industry's rebound would be more gradual, which would encourage automakers to maintain their discipline on production and prices. Nonetheless, he sees a modest rise in new vehicle prices as chip production stabilizes and automakers reduce their focus on the highest-margin sellers. "Prices are unlimited," said Keogh.

Another factor that will force automakers to maintain price discipline is the launch of electric vehicles, where companies will have to lower prices to attract buyers while maintaining profit margins, he said.