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

DETROIT (AP) — 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.

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.

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“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 Mobility 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.

    Russia war could further escalate auto prices and shortages (1)

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

    Russia war could further escalate auto prices and shortages (2)

    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.

    “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.

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

    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.

    “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.

    (Video) How War in Ukraine is Destroying Russia

    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.

    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.”

    ___

    Chan reported from London.

    (Video) What does the future hold for Ukraine after 6 months of war with Russia?

    FAQs

    How is the Russia Ukraine war affecting the automotive industry? ›

    The Russo-Ukrainian war severely disrupted the automotive value chain and prompted OEMs and suppliers to defer or discontinue trade with Russia.

    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 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.

    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.

    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 Russians 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.

    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

    Are car prices going up 2022? ›

    Car prices have accelerated in recent months, as with many other consumer goods. According to figures from data analytics firm J.D. Power, the average price paid for a new vehicle in the U.S. was up 6.3% year-over-year in September 2022.

    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 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.

    Will cars get more expensive? ›

    Given the rules of supply and demand, fewer cars for sale will likely mean prices stay elevated that much longer. Based on those assessments, it looks like new cars will be in short supply well into 2024, and the number of used cars on the market could lag behind demand at least a couple of years beyond that.

    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.

    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.

    How will Ukraine 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.

    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.

    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.

    What is the number one car sold in Russia? ›

    Hyundai Solaris

    How many fighter jets has Russia lost Ukraine? ›

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

    How many tanks have Ukraine lost to Russia? ›

    Rising from the rust. Even the rough estimate provided by Oryx's data shows that Russia has sustained a heavy blow in terms of the technological quality of its tank fleet in Ukraine. Russia has lost a minimum of 220 older T-72B tanks and some 270 of its workhorse T-72B3/M versions modified in the 2010s.

    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.

    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 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.

    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.

    Will 2023 be a good time to buy a car? ›

    Bottom Line: Demand for new and used vehicles will continue to grow in 2023. You might not be able to find exactly what you want in a vehicle.

    Will it be cheaper to buy a car in 2022? ›

    In the past, Clark has predicted that the market would gradually improve throughout 2022, and now we're finally starting to see some lower prices. While this decline will continue gradually month to month, it'll likely be sometime in 2023 before we see the used vehicle market return to near-pre-pandemic prices.

    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 prices will go up due to war in Ukraine? ›

    The war in Ukraine will result in expensive food and energy for the next three years, the World Bank has warned, intensifying fears that the global economy is heading for a rerun of the weak growth and high inflation of the 1970s.

    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.

    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

    Are cars overpriced right now? ›

    Car prices are skyrocketing

    The price of new cars and trucks had been rather steady in recent years but jumped by 11.4 percent in 2022, according to the Bureau of Labor Statistics. Prices for used vehicles increased by 7.1 percent.

    Why are cars so overpriced right now? ›

    Why are used cars so expensive right now? To make a long story short, the combination of the global chip shortage and consumer demand has caused the price of used vehicles to rise at dealerships across the country.

    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.

    How much should I pay for a new car 2022? ›

    New Car Prices Rise Closer to Average of $50,000 in 2022 | Money.

    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 Honda pulling out of Russia? ›

    Honda said it will stop exports of cars and motorcycles to Russia due to challenges around distribution and finances.

    Is Ford pulling out of Russia? ›

    Ford in 2019 exited Russia's passenger-car market to focus on light commercial vehicles. Ford sold its 49 percent stake in the Sollers Ford joint venture, finalizing its exit from Russia after suspending operations in the country earlier this year after Moscow's invasion of Ukraine.

    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 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

    Which car manufacturers 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.

    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.

    Will war in Ukraine affect car prices? ›

    War has wide-reaching effects. Over several generations without a major war affecting the industrialized economies of Europe, global trade has grown more and more interconnected. That leaves nations far from the hostilities dealing with some surprising ripple effects.

    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.

    How does Russia Ukraine conflict affect the oil and gas industry? ›

    Both the invasion of Ukraine and the series of reactions from Western countries sent the prices of oil and gas soaring. The demand for hydrocarbons has increased as economies reopen and enter recovery phases.

    What is the impact on Ukraine crisis on oil & gas sector? ›

    Russian crude oil exports from 2010 to 2021

    Since the second half of 2021, European energy costs have increased by 54%. Following Russia's invasion of Ukraine, European natural gas prices nearly tripled, and crude oil prices reached $105 per barrel for the first time since 2014.

    Will Russia Ukraine war affect IT industry? ›

    Russia-Ukraine war: The Conflict will Generate a $5.5 Billion Loss for the ICT Market in 2022.

    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.

    What industries will benefit from war in Ukraine? ›

    Business is booming for arms makers, energy companies and camping equipment manufacturers -- due to the war in Ukraine. Many European and American companies are benefiting from the crisis.

    What companies will profit from war in Ukraine? ›

    And what a rip it was. A basket of five— Northrop Grumman (ticker: NOC), Lockheed Martin (LMT), General Dynamics (GD), L3Harris Technologies (LHX), and Leidos Holdings (LDOS)—have gained 5.8% in 2022, far better than the S&P 500 index's 24% drop.

    Can the world go without Russian oil? ›

    But much of that increased output would require further investment and much more time. As a result, a total loss of Russian oil exports would be very damaging for global GDP in the short/medium term. Much higher prices would drive demand destruction (less economic activity) to rebalance the market.

    Can Europe survive without Russian gas? ›

    Replacing 130 bcm of natural gas imports from Russia within a year would be a significant challenge, but, as our rough estimates show, not impossible.

    Is the war in Ukraine affecting oil prices? ›

    US ban on Russian oil imports

    Strong economic recovery coupled with low investment in oil production were hugely exacerbated by the Russian invasion of Ukraine. This sent the oil price to stratospheric levels and this is being passed over to consumers at the pump.

    Who buys the most oil from Russia? ›

    The Top Importers of Russian Fossil Fuels
    CountryValue of fossil fuel imports from Russia (Feb 24 - Jun 4)% of Russian fossil fuel export revenue
    China$13.2B13.5%
    Germany$12.7B12.9%
    Italy$8.2B8.4%
    Netherlands$8.2B8.4%
    6 more rows
    28 Jun 2022

    Why oil prices are rising during war? ›

    As with most commodities, the price of oil is driven largely by supply and demand. Historically, extremely high oil prices have been predominantly influenced by geopolitical tensions or war in an energy-producing country, as was the case in the 1990s when Iraq invaded Kuwait.

    How much is a gallon of gas in Ukraine? ›

    For comparison, the average price of gasoline in the world for this period is 68.70 Ukrainian Hryvnia. Use the drop menu to see the prices in gallons.
    ...
    Ukraine Gasoline prices, 31-Oct-2022.
    Ukraine Gasoline pricesLitreGallon
    USD1.3385.065
    EUR1.3545.125
    1 more row

    Will Ukraine War Affect World economy? ›

    The conflict is a major blow to the global economy that will hurt growth and raise prices. Beyond the suffering and humanitarian crisis from Russia's invasion of Ukraine, the entire global economy will feel the effects of slower growth and faster inflation.

    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, ...

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