May 17, 2022

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Half the Automotive

Russia’s invasion of Ukraine is going to make buying a car even worse

Pickup trucks at a car dealership.

Pickup trucks at a car dealership in Littleton, Colorado.David Zalubowski/AP

Russia’s invasion of Ukraine is sending shockwaves through the global economy as retaliative sanctions and war disrupt already-battered supply chains.

Americans are already feeling the effects of the crisis in the form of sky-high gas prices, the likes of which haven’t been seen since the Great Recession. There’s another potential impact: Putin’s war could keep expensive car prices from heading back toward Earth.

Since the pandemic started, the cost of both new and used vehicles has shot up as a computer-chip shortage, supply-chain problems, and COVID-19 outbreaks hobbled car production worldwide. Over the last 12 months, the average price of a new vehicle rose 12%, while used-car prices shot up 41%, according to the US Consumer Price Index, which tracks inflation.

In February, the average transaction price for a new car was $46,085, according to Kelley Blue Book, down from a record high in December. That figure rose nearly $10,000 between 2020 and 2021.

Carmakers were just beginning to see the light at the end of the tunnel when Russia’s incursion kicked off a new wave of challenges — challenges that could hurt the global supply of new vehicles and make them more expensive to produce.

Volkswagen, Porsche, and BMW all have cut production at European factories due to a lack of critical components coming from suppliers in Ukraine. The country manufactures wiring harnesses, which organize cables within a vehicle. Several carmakers have ceased production at plants within Russia.

Moreover, Russia is a significant supplier of automotive-grade metals like aluminum, palladium, and nickel, the last of which is a key component in electric-vehicle batteries. Prices for these and other raw materials have shot up in the wake of wide-ranging sanctions on Russian exports, and carmakers could pass on increased costs to consumers, experts say.

“With prices for oil and gas, along with commodities like metals used to build vehicles, soaring due to Russia’s invasion of Ukraine, automakers may be compelled to try to offset their increasing costs by raising vehicle prices,” Michelle Krebs, executive analyst at Cox Automotive, said in a statement. “The Ukraine situation is causing additional disruption to the automotive supply chain which makes the likelihood of growing inventory, which remains stuck at low levels, less of a sure thing.”

Spiking nickel prices could increase the cost of producing an electric car by up to $2,000, according to a Morgan Stanley analyst note.

Late last month, JD Power and LMC Automotive cut their projection for global light-vehicle sales by 400,000 units. “An already tight supply of vehicles and high prices across the globe will be under added pressure based on the severity and duration of the conflict in Ukraine,” said Jeff Schuster, president of the Americas for LMC Automotive.

Read the original article on Business Insider