German automakers raise car prices as demand outstrips supply

German automakers may be raising car prices as demand for new vehicles outstrips a supply that is still struggling with a shortage of semiconductors.

That is according to the Munich-based Ifo economics institute, which compiles the country's most-watched business survey. It says the situation in the auto industry improved at the start of the year, even though conditions for suppliers got worse.

"A possible reason for this is that automakers succeeded in getting customers on board with price increases, whereas suppliers have not," said Oliver Falck, director of the ifo Center for Industrial Organization and New Technologies.

Evidence that automakers are able to charge customers more could point to more inflation pressures in Europe's largest economy. Annual price growth hit 6 percent at the end of last year and has eased much less than expected in recent weeks.

Germany's manufacturing-led economy has been slower than peers to recover from the pandemic amid a global supply squeeze that left almost a fifth of employees in the car sector furloughed in December.

New-car registrations fell 10 percent in Germany last year to 2.6 million vehicles, a decline largely triggered by the global shortage of semiconductor chips.

As the number of produced cars remains low and demand is high, automakers can demand higher prices, said Falck.

"The market for new cars has been cleaned out," he said. "So dealerships can sell their stock to customers without offering any discounts."