Russia war could further escalate auto prices and shortages (2023)

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BMW has halted production at two German factories. Mercedes is slowing work at its assembly plants. Volkswagen, warning of production stoppages, is looking for alternative sources for parts.

For more than a year, the global auto industry has struggled with a disastrous shortage of computer chips and other vital parts that has shrunk production, slowed deliveries and sent prices for new and used cars soaring beyond reach for millions of consumers.

Now, a new factor — Russia’s war against Ukraine — has thrown up yet another obstacle. Critically important electrical wiring, made in Ukraine, is suddenly out of reach. With buyer demand high, materials scarce and the war causing new disruptions, vehicle prices are expected to head even higher well into next year.

(Video) Russia war could further escalate auto prices and shortages | News #Shorts

The war’s damage to the auto industry has emerged first in Europe. But U.S. production will likely suffer eventually, too, if Russian exports of metals — from palladium for catalytic converters to nickel for electric vehicle batteries — are cut off.

“You only need to miss one part not to be able to make a car,” said Mark Wakefield, co-leader of consulting firm Alix Partners’ global automotive unit. “Any bump in the road becomes either a disruption of production or a vastly unplanned-for cost increase.”

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Supply problems have bedeviled automakers since the pandemic erupted two years ago, at times shuttering factories and causing vehicle shortages. The robust recovery that followed the recession caused demand for autos to vastly outstrip supply — a mismatch that sent prices for new and used vehicles skyrocketing well beyond overall high inflation.

In the United States, the average price of a new vehicle is up 13% in the past year, to $45,596, according to Edmunds.com. Average used prices have surged far more: They’re up 29% to $29,646 as of February.

Before the war, S&P Global had predicted that global automakers would build 84 million vehicles this year and 91 million next year. (By comparison, they built 94 million in 2018.) Now it’s forecasting fewer than 82 million in 2022 and 88 million next year.

Mark Fulthorpe, an executive director for S&P, is among analysts who think the availability of new vehicles in North America and Europe will remain severely tight — and prices high — well into 2023. Compounding the problem, buyers who are priced out of the new-vehicle market will intensify demand for used autos and keep those prices elevated, too — prohibitively so for many households.

Eventually, high inflation across the economy — for food, gasoline, rent and other necessities — will likely leave a vast number of ordinary buyers unable to afford a new or used vehicle. Demand would then wane. And so, eventually, would prices.

(Video) How War in Ukraine Will Cause Russia To Collapse

“Until inflationary pressures start to really erode consumer and business capabilities,” Fulthorpe said, “it’s probably going to mean that those who have the inclination to buy a new vehicle, they’ll be prepared to pay top dollar.”

One factor behind the dimming outlook for production is the shuttering of auto plants in Russia. Last week, French automaker Renault, one of the last automakers that have continued to build in Russia, said it would suspend production in Moscow.

The transformation of Ukraine into an embattled war zone has hurt, too. Wells Fargo estimates that 10% to 15% of crucial wiring harnesses that supply vehicle production in the vast European Union were made in Ukraine. In the past decade, automakers and parts companies invested in Ukrainian factories to limit costs and gain proximity to European plants.

The wiring shortage has slowed factories in Germany, Poland, the Czech Republic and elsewhere, leading S&P to slash its forecast for worldwide auto production by 2.6 million vehicles for both this year and next. The shortages could reduce exports of German vehicles to the United States and elsewhere.

Wiring harnesses are bundles of wires and connectors that are unique to each model; they can't be easily re-sourced to another parts maker. Despite the war, harness makers like Aptiv and Leoni have managed to reopen factories sporadically in Western Ukraine. Still Joseph Massaro, Aptiv’s chief financial officer, acknowledged that Ukraine “is not open for any type of normal commercial activity.”

Aptiv, based in Dublin, is trying to shift production to Poland, Romania, Serbia and possibly Morocco. But the process will take up to six weeks, leaving some automakers short of parts during that time.

(Video) Why Russia Can't Withstand the Insane Cost of War Against Ukraine

“Long term,” Massaro told analysts, “we’ll 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 casting a wider net for parts. So are Mercedes and Volkswagen.

Yet finding alternative supplies may be next to impossible. Most parts plants are operating close to capacity, so new work space would have to be built. Companies would need months to hire more people and add work shifts.

"The training process to bring up to speed a new workforce — it’s not an overnight thing,” Fulthorpe said.

Fulthorpe said he foresees a further tightening supply of materials from both Ukraine and Russia. Ukraine is the world’s largest exporter of neon, a gas used in lasers that etch circuits onto computer chips. Most chip makers have a six-month supply; late in the year, they could run short. That would worsen the chip shortage, which before the war had been delaying production even more than automakers expected.

Likewise, Russia is a key supplier of such raw materials as platinum and palladium, used in pollution-reducing catalytic converters. Russia also produces 10% of the world’s nickel, an essential ingredient in EV batteries.

Mineral supplies from Russia haven’t been shut off yet. Recycling might help ease the shortage. Other countries may increase production. And some manufacturers have stockpiled the metals.

But Russia also is a big aluminum producer, and a source of pig iron, used to make steel. Nearly 70% of U.S. pig iron imports come from Russia and Ukraine, Alix Partners says, so steelmakers will need to switch to production from Brazil or use alternative materials. In the meantime, steel prices have rocketed up from $900 a ton a few weeks ago to $1,500 now.

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So far, negotiations toward a cease-fire in Ukraine have gone nowhere, and the fighting has raged on. A new virus surge in China could cut into parts supplies, too. Industry analysts say they have no clear idea when parts, raw materials and auto production will flow normally.

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

Wakefield noted, too, that because of intense pent-up demand for vehicles across the world, even if automakers restore full production, the process of building enough vehicles will be a protracted one.

When might the world produce an ample enough supply of cars and trucks to meet demand and keep prices down?

Wakefield doesn’t profess to know.

“We’re in a raising-price environment, a (production)-constrained environment,” he said. “That’s a weird thing for the auto industry.”

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(Video) How Putin held Europe hostage over energy | FT Energy Source

Chan reported from London.

FAQs

Will Russia Ukraine War affect automobile industry? ›

The Russia-Ukraine war has had immediate impact on the automotive sector in four key areas. In this brief paper, we look at how the war and sanctions on Russia have already disrupted the automotive supply chains and markets.

Will car prices go up with Russia war? ›

“Russia is a large supplier of key raw materials and rare earth metals supporting the global automotive community,” McCabe said. “As sanctions are put in place, expect to see a constraint on supply and increased prices as the industry will be forced to rely on other sources.”

Will Russia affect car prices? ›

The economic impacts of Russia's invasion of Ukraine are already being felt by US consumers. The crisis is complicating car manufacturing and could keep expensive car prices from coming down. Prices of certain metals have surged as a result of the war, and some auto plants are shutting down.

Will the war in Ukraine affect the car market? ›

Prices for cars are high enough as it is. Adding the Russian and Ukrainian war to the mix could make some out of reach for the average consumer. The automakers producing vehicles on Russian soil will be affected by the sanctions as well.

Which car companies have pulled out of Russia? ›

The decision comes after many Western companies pulled out of Russia earlier in the year, including Starbucks, McDonald's and Coca-Cola. Other car firms, including Jaguar Land Rover, General Motors, Aston Martin and Rolls-Royce, all halted deliveries to the country in the early months of the war.

How many vehicles have the Russian lost in Ukraine? ›

The same independent verification exists for most of the other Ukrainian claims. Recently, the Pentagon acknowledged that the Russian military has lost thousands of combat vehicles of all types, including over 1,000 tanks, and dozens of fighter jets and helicopters.

Should you buy a new car during inflation? ›

Don't be afraid to buy a car during an inflationary economy

For example, interest rates on loans are typically lower in an inflationary economy, which can make it a good time to buy a car.

Are car prices going up because of Ukraine? ›

The war in Ukraine is increasing the cost of metals used in vehicles, which may soon reflect in higher auto prices.

Will car prices increase in 2022? ›

BMW, Toyota, Mercedes-Benz and Audi have announced a price increase across their model line-up from April 1, 2022. All carmakers have cited rising input costs as the major reason behind the hike. In January this year, several car brands, including luxury ones, had increased the prices citing the same reason.

Is Toyota still selling in Russia? ›

Japanese car giant Toyota – the world's biggest car-maker by annual sales volume – has announced it will exit the Russian market, selling its Saint Petersburg factory and ending imports to the eastern European country.

Is Toyota still selling cars in Russia? ›

NAGOYA, Japan -- Toyota Motor on Friday announced an exit from automobile production and sales in Russia, citing difficulties supplying key materials and parts in the country amid the war in Ukraine.

Will car prices ever drop or will they stay high? ›

Used car prices have likely peaked, but new car prices are set to remain elevated through end-2022. In 2023, prices are expected to decline by 2.5% to 5% for new cars and by 10% to 20% for used cars.

Will new cars get more expensive? ›

And prices are likely to continue rising because demand for new vehicles is unusually high while inventories are low compared to previous years, experts told CBS MoneyWatch.

How many armored vehicles has Ukraine lost? ›

But Russia's recent defeats in and around Kyiv expose unresolved weaknesses, starting with Russia's armored vehicles. To date, Ukraine says Russia has lost close to 3,000 armored vehicles — but only half in combat.

Will car prices get worse? ›

Don't expect car prices to drop significantly anytime soon. Instead, new-vehicle prices — already at record highs — will remain elevated, automotive experts say. At the same time, used-vehicle pricing should moderate as the Federal Reserve continues raising interest rates to curb inflation.

Is Ford still doing business in Russia? ›

DEARBORN, Mich., Oct. 26, 2022 – Ford Motor Company has finalized the exit of its previously suspended operations in Russia through the sale of its 49 percent share in the Sollers Ford Joint Venture.

Has Ford stopped production in Russia? ›

Ford in recent years "has significantly wound down its Russian operations," the company said. Today, Ford's operations in Russia are commercial van manufacturing and sales through a minority interest in the Sollers Ford joint venture in Khimki, about 12 miles from Moscow.

Is Honda doing business with Russia? ›

Honda doesn't have a factory in Russia, but it exports about 1,500 SUVs annually to the country from plants in the U.S., according to NHK.

How many fighter jets has Russia lost Ukraine? ›

I write about ships, planes, tanks, drones, missiles and satellites.

How many tanks has Ukraine destroyed of Russian? ›

And it's a staggering figure as well. According to the Dutch warfare research group Oryx, Russia has lost 1,450 tanks since the war began, nearly 900 of which have been damaged or destroyed. The rest were abandoned by the Russians, and many of those ultimately have since been captured by the Ukrainians.

How many generals has Russia lost in the Ukraine war? ›

A high number of Russian generals have been killed during the 2022 Russian invasion of Ukraine. As of 11 July 2022, Ukrainian sources claimed that 14 Russian generals had been killed during the invasion. Although some claims were rebutted, the loss of even two general officers is rare.

Is buying a new car worth it 2022? ›

Lower Prices: Though it may seem counterintuitive, buying a new car can save you money in the long run. Buying a new car in 2022 means not only getting a lower price but also getting a vehicle that's under warranty. This means that if something goes wrong with your car, you won't have to pay for repairs.

How can I save money on a new car in 2022? ›

5 ways to save when buying a car
  1. Avoid dealerships' hidden fees. Dealerships tend to have a lot of hidden fees. ...
  2. Use alternatives to dealerships. ...
  3. Compare new to recent models. ...
  4. Look for better financing options. ...
  5. Build your savings first.
11 Apr 2022

Is it good to have cash on hand during inflation? ›

Cash is often overlooked as an inflation hedge, says Arnott. “While cash isn't a growth asset, it will usually keep up with inflation in nominal terms if inflation is accompanied by rising short-term interest rates,” she adds.

Will used car prices ever go back down? ›

“Over the course of the next two years, we're going to see used car prices retreat back to more normal levels. So by the time we get to 2025, that's really when used prices will bottom,” J.D. Power's Paris said. And even when prices do “bottom out,” they aren't likely to return to pre-pandemic levels.

Will car prices ever normalize? ›

Used-Car Prices Will Drop: Here's How to Prepare. As new-car inventory begins to stabilize, J.D. Power forecasts that used-vehicle values will begin their descent to more normal levels by late 2022 and into 2023. “We do expect used prices to cool once new-vehicle production and inventories begin to recover,” Paris said ...

What is causing car prices to increase? ›

That scarcity has created surging demand for used cars, driving up their prices. The economy's ongoing inflation has caused the price of several common commodities to spike significantly. The prices of used cars, fuel, and gasoline have all gone up over 40% since last year.

Will the car shortage get better in 2022? ›

While the worst of the car inventory crisis might be behind us, automotive analysts project that chip shortages and other limiting factors will curtail production till 2023. Car sales is expected to surge in the second half of 2022 and may rebound to pre-covid levels, for better volumes in 2023 and 2024.

Can car prices be negotiated in 2022? ›

The short answer is yes. However, for many, even the thought of negotiating new car prices can seem intimidating. Treat this experience like any negotiation and go in with a plan. The more thought you put into it upfront, the more confidence you'll feel about speaking with your dealer about the price of your new car.

Will there be a shortage of 2023 cars? ›

"Although a few automakers indicate they are back at full production, most report continuing shortages. The shortages will prevent automakers from producing enough vehicles to meet demand in 2022 and 2023, resulting in continued high prices for most vehicles."

Are they asking Tesla to turn off cars in Russia? ›

Elon Musk has been asked to “turn off” Teslas in Russia as he has made superchargers free for people fleeing Ukraine in electric vehicles.

What is the number one selling car in Russia? ›

Hyundai Solaris

Does Russia have American cars? ›

Chevrolet and Jeep are the only American cars I can say one can encounter here, while the majority of the population still buys more Japanese, Italian (Fiat) and French cars.

What companies are not pulling out of Russia? ›

But while some of the biggest names in business have announced they are pulling out, some have decided to remain.
  • Brands staying in Russia:
  • Ab InBev. Stella Artois owner seeking to suspend sales of Bud beer in Russia.
  • Alphabet. ...
  • Bank of China. ...
  • BNP Paribas. ...
  • British American Tobacco. ...
  • Burger King. ...
  • Carlsberg Group.
9 Mar 2022

Can you still buy German cars in Russia? ›

German automakers are suspending production in Russia and are halting imports of cars into the country in response to Russia's invasion of Ukraine. The actions are a result of compliance with Western economic sanctions imposed on Russia, supply-chain disruptions or both.

Is Chevrolet sold in Russia? ›

GM's presence in Russia is small. It sells about 3,000 Cadillac and Chevrolet vehicles a year in the country and it has limited supply chain exposure, Svigos said.

When should I buy a car in 2022? ›

Best time of year to buy a used car

Like purchasing a new car, you can save the most money by buying a used car between October and December. Because these months coincide with peak season for new car buying at the dealerships, there are more used or trade-in cars for sale—and better prices available, Montoya says.

Will car interest rates go down in 2023? ›

Experts say car interest rates will stay high at least through 2023.

What cars are not on shortage? ›

Top 7 Cars Unaffected By The Chip Shortage
  • 2021 Hyundai Sonata. The Sonata is a great choice for families. ...
  • 2021 Jeep Compass. The Jeep Compass is reliable and aesthetically appealing. ...
  • 2021 Nissan Titan. ...
  • 2021 Nissan Altima. ...
  • 2021 Ram 1500 Classic. ...
  • 2021 Nissan Sentra. ...
  • 2021 Volvo XC60. ...
  • 2021 Ford Expedition.
1 Sept 2022

Is a good time to buy a car? ›

In terms of the best time of the year, October, November and December are safe bets. Car dealerships have sales quotas, which typically break down into yearly, quarterly and monthly sales goals. All three goals begin to come together late in the year.

Are brand new cars overpriced right now? ›

Since the beginning of the Covid-19 pandemic, new and used car prices have risen dramatically, leaving buyers with limited choices for finding affordable vehicles. According to Kelley Blue Book, the average price of a new car reached an all-time high of $48,301 in August — up nearly 11% compared to last year.

How many tanks has Ukraine destroyed? ›

19 the Ukrainian army had lost just 320 tanks: 176 of them destroyed.

How many tank has Ukraine destroyed? ›

Ukraine Has Destroyed 2,000 Russian Tanks, 254 Aircraft & 48,700 Soldiers.

How many trucks has Ukraine destroyed? ›

23, the Ukrainians claim they've destroyed nearly 700 Russian trucks. Independent observers have confirmed 485 of those claims.

What is the impact of Russia Ukraine War in the economy? ›

While global prices for oil, gas and coal have been rising since early 2021, they skyrocketed after Russia's invasion of Ukraine, sending inflation to levels not seen for decades in the region.

Which companies are affected by Russian war? ›

Besides these companies, other international companies that have a deep footprint in Russia, are French carmaker Renault, German chemicals maker BASF, British oil company BP, French yoghurt maker Danone, French gas utility company Engie, German retailer Metro, French jet engine maker Safran, Dutch oil company Shell, ...

How the war in Ukraine has affected automotive supply chains? ›

Decreasing revenues and increasing costs. 'The war in Ukraine has affected the European automotive industry in many respects. Disrupted supply chains meant that production lines and factories were closed at very short notice. This led to unpredictability, which is the worst thing for our industry.

Which companies will benefit from Russia war? ›

In this article we share with you the 4 companies that may benefit from the ongoing war.
  • #1 Tata Steel. Russia is the 5th largest steel producer, while Ukraine ranks 14th globally. ...
  • #2 Dr. Reddy's Lab. ...
  • #3 Indian Oil Corporation (IOC) ...
  • #4 Gas Authority of India Limited (GAIL) ...
  • Closing remarks...
18 Apr 2022

How is the war in Ukraine affecting the world economy? ›

The increased geopolitical risks induced by the Russian invasion of Ukraine will weigh adversely on global economic conditions throughout 2022. Such effects are estimated in our model to reduce GDP and boost inflation significantly, exacerbating the policy trade-offs facing central banks around the world.

Does war cause inflation? ›

A war economy therefore imposes higher taxes on wages and profits to reduce demand. War bonds and taxes provide finance for the war effort and reduce demand for civilian goods and services. To conduct a major war without such an austerity program risks inflation.

How does the Russia Ukraine war affect the world? ›

The war also continues to have amajor effect on the global markets and food supply. Ukraine's inability to export grain throughout the first five months of the conflict worsened a global hunger crisis, with catastrophic impacts throughout the world.

What does the Russian war mean for the stock market? ›

“A Russian defeat would likely see energy prices fall, inflation head lower, interest rate hike expectations get ratcheted down, and the euro and the yen bounce back. And equity markets everywhere would rip higher,” Gave writes. That's the most optimistic outcome. It's also one that may be the least likely.

What should I invest in with Ukraine Russia war? ›

How to invest during the war in Ukraine
  • Stocks. Consider carefully if you want to rush to dump your stocks. ...
  • Inflation. War has always been a solid predictor of inflation, from the Russian Revolution to Vietnam. ...
  • Energy stocks. ...
  • Inflation-protected bonds. ...
  • Australia's natural resources. ...
  • Nuclear War.
22 Mar 2022

Has Amazon pulled from Russia? ›

Amazon.com Inc. says it has stopped shipping products sold on its retail website to customers based in Russia and cut off access to its video streaming service there.

How will Ukraine war affect car prices? ›

With buyer demand high, materials scarce, and the war causing new disruptions, vehicle prices are expected to head even higher well into next year. The war's damage to the auto industry has emerged first in Europe.

Does Ukraine make chips for cars? ›

Ukraine supplies 70 percent of the world's output of neon, a critical gas that runs lasers needed to manufacture microchips. To make microchips, manufacturers use lasers run by neon, and Ukraine is the source for 70 percent of the world's output of neon.

What stocks skyrocket during war? ›

Which Stocks Do Best During a War? In general, defense stocks (companies that produce weapons and armaments) tend to fare the best during a wartime environment. Energy companies may also see a boost in conflicts that result in higher oil and commodity prices.

What should I invest in war right now? ›

Defense stocks, energy stocks, commodities, cash, and ETFs are stocks and investments that typically do well during times of war and conflict. However, it is often best to build a well-diversified portfolio than try to pick the individual winning stocks during a conflict.

What can I buy during war? ›

Commodities to Buy During War
  • Digital Gold. Gold, being a precious metal, has always held a special place in the hearts of people around the world. ...
  • Digital Silver: Commodities to Buy During War. ...
  • Blue-Chip War Stocks: Commodities to Buy During War. ...
  • Commodity-based ETFs: Commodities to Buy During War. ...
  • Daily Commodities.
4 Apr 2022

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