Vehicle prices, shortages expected to rise as Russian invasion of Ukraine continues – National

BMW has stopped production at two German factories. Mercedes it’s slowing down work at its assembly plants. Volkswagen, warning of production stops, is looking for alternative sources of spare parts.

For more than a year, the global auto industry has grappled with a disastrous shortage of computer chips and other vital parts that has slashed production, delayed deliveries and sent prices of new and used cars skyrocketing beyond the reach of millions of consumers.

Now a new factor – Russia’s war against Ukraine – has posed a new obstacle. Critical electrical wiring, made in Ukraine, is suddenly out of range. With high buyer demand, material shortages and the war causing further disruption, vehicle prices are expected to rise further well into next year.

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War damage to the auto industry has surfaced first in Europe. But U.S. production is also likely to suffer eventually, if Russian exports of metals, from palladium for catalytic converters to nickel for electric vehicle batteries, are disrupted.

“You only need to lose one part to not be able to make a car,” said Mark Wakefield, co-head of the global automotive unit at consultancy Alix Partners. “Any bump in the road turns into a production disruption or an unplanned cost increase.”

Supply problems have plagued automakers since the pandemic broke out two years ago, at times closing factories and causing vehicle shortages. The strong recovery that followed the recession saw demand for cars vastly outstrip supply, a mismatch that sent prices for new and used vehicles soaring far beyond overall high inflation.

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In the United States, the median price of a new vehicle rose 13% last year to $45,596, according to Edmunds.com. Average prices for used cars are up much more: They’re up 29% to $29,646 as of February.

Before the war, S&P Global had forecast that the world’s automakers would make 84 million vehicles this year and 91 million next. (By comparison, they built 94 million in 2018.) It now forecasts less than 82 million in 2022 and 88 million next year.

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S&P CEO Mark Fulthorpe is among the analysts who believe new vehicle availability in North America and Europe will remain severely limited, and prices high, well into 2023. The vehicle market will intensify demand for used cars and will keep those prices high too, prohibitively so for many households.


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Eventually, high inflation throughout the economy (for groceries, gas, rent, and other necessities) will likely leave a large number of ordinary buyers unable to afford a new or used vehicle. Then the demand would decrease. And so, eventually, would prices.

“Until inflationary pressures start to really erode the capabilities of consumers and businesses,” Fulthorpe said, “it will likely mean that those who are inclined to buy a new vehicle will be prepared to pay top dollar.”

One factor behind the declining outlook for production is the closure of auto plants in Russia. Last week, French automaker Renault, one of the last automakers to continue building in Russia, said it would suspend production in Moscow.

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Ukraine’s transformation into a besieged war zone has also affected. Wells Fargo estimates that between 10% and 15% of the critical wiring harnesses that supply vehicle production in the vast European Union were made in Ukraine. In the last decade, automakers and parts companies have invested in Ukrainian factories to limit costs and gain proximity to European plants.

Wiring shortages have slowed down factories in Germany, Poland, the Czech Republic and elsewhere, prompting S&P to cut its forecast for global auto production by 2.6 million vehicles for both this year and next. . The shortage could reduce German vehicle exports to the United States and elsewhere.

Wiring harnesses are bundles of wires and connectors that are unique to each model; they cannot be easily relocated to another parts manufacturer. Despite the war, harness manufacturers like Aptiv and Leoni have managed to sporadically reopen factories in western Ukraine. Still, Joseph Massaro, chief financial officer of Aptiv, acknowledged that Ukraine “is not open to any kind of normal business activity.”


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Dublin-based Aptiv is looking to move production to Poland, Romania, Serbia and possibly Morocco. But the process will take up to six weeks, leaving some automakers without parts during that time.

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“In the long term,” Massaro told analysts, “we will have to assess if and when it makes sense to go back to Ukraine.”

BMW is trying to coordinate with its Ukrainian suppliers and is launching a wider network of spare parts. So are Mercedes and Volkswagen.

However, finding alternative supplies can be next to impossible. Most parts plants are operating near capacity, so new workspace would have to be built. Companies would need months to hire more people and add work shifts.

“The training process to bring a new workforce up to speed is not something that happens overnight,” Fulthorpe said.

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Fulthorpe said he anticipates a further tightening of material supplies from both Ukraine and Russia. Ukraine is the world’s largest exporter of neon, a gas used in lasers that etch circuits into computer chips. Most chipmakers have a six-month supply; at the end of the year, they could run out. That would worsen the chip shortage, which before the war had delayed production even longer than automakers expected.

Russia is also a key supplier of raw materials such as platinum and palladium, which are used in catalytic converters that reduce pollution. Russia also produces 10% of the world’s nickel, an essential ingredient in electric vehicle batteries.

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Mineral supplies from Russia have not yet been closed. Recycling could help ease the shortage. Other countries can increase production. And some manufacturers have stockpiled the metals.


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But Russia is also a big producer of aluminum and a source of pig iron, which is used to make steel. Almost 70% of US pig iron imports come from Russia and Ukraine, Alix Partners says, so steelmakers will have to switch to producing from Brazil or use alternative materials. Meanwhile, steel prices have soared from $900 a ton a few weeks ago to $1,500 now.

So far, negotiations for a ceasefire in Ukraine have gone nowhere and the fighting continues. A new virus surge in China could also reduce parts supply. Industry analysts say they don’t have a clear idea of ​​when auto parts, raw materials and production will normally flow.

Even if a deal is negotiated to end the fighting, sanctions against Russian exports would remain intact until a final agreement is reached. Even then, the supplies wouldn’t start flowing normally. Fulthorpe said there would be “more hangovers due to the disruption that will take place in widespread supply chains.”

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Wakefield also pointed out that due to the intense pent-up demand for vehicles around the world, even if automakers restore full production, the process of making enough vehicles will take a long time.

When could the world produce a large enough supply of cars and trucks to meet demand and keep prices low?

Wakefield doesn’t pretend to know.

“We are in an environment of rising prices, a restricted (production) environment,” he said. “That’s a strange thing for the auto industry.”

© 2022 Associated Press

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