Russia-Ukraine War Increasing Auto Prices, Here’s Why
With particular attention being given to soaring oil prices as of late, it’s easy to forget that production — and consequent costs — in many industries are taking a hit due to the Russia-Ukraine war, a war which has battered an already unstable world economy. The war has also had a negative impact on the global automotive industry.
Vehicle prices have increased considerably over the past 12 months, at least partially due to supply chain disruptions. The war is further exacerbating existing supply chain disorders and semiconductor chip shortages caused by the pandemic, and demand for vehicles far exceeds supply, causing prices to escalate alongside high inflation. The past year has seen an increase of 13% for the average price of a new vehicle, according to Edmunds. Used car prices have surged 29% over the same period of time.
Global production is expected to tumble from a predicted 84 million vehicles this year (and an estimated 91 million in 2023) to 82 million and 88 million, respectively, as manufacturing plants either close or scramble to find parts and components — including Ukraine’s electrical wiring harnesses and Russia’s precious metals.
Scenes of slowed and stopped assembly lines in factories owned by heavy hitters like Mercedes, Volkswagen and BMW are becoming more common throughout Europe, but the current state of the industry will have adverse effects on U.S. auto manufacturing as well.
According to Wells Fargo, an estimated 10%-15% of automotive wiring harnesses are made in Ukraine. Ukraine-based wiring harness factories run by companies like Aptiv and Leoni have largely shuttered their operations (though sporadic factory operations continue to take place in Western Ukraine) and are looking elsewhere to set up shop. Automakers that depend on parts from China or Eastern Europe are trying to plot alternative trade routes for parts. But relocating production to other countries would involve huge capital costs — and valuable time — and would require detailed analysis to avoid delays in exports and imports.
As sanctions against Russia continue, unavailable source materials like palladium and neon gas — which are required for auto parts (i.e.: catalytic converters) and semiconductor production — will cause damage to American automotive makers’ production and costs.
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