GOBankingRates

Russia-Ukraine War Increasing Auto Prices, Here’s Why

gerenme / iStock.com

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.

Discover: The Best and Worst Things To Buy Generic
More: 16 Budgeting Tips Every Single Woman Needs To Know

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.

Make Your Money Work Better for You

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.

See: EVs Can Let You Avoid High Gas Prices, but Make Sure They Fit Your Lifestyle
Find: Thinking About Buying an Electric Car as Gas Prices Rise? These Are the Best and Worst States for EVs

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.

More From GOBankingRates