Why war in Ukraine will mean more expensive cars (2023)

FAQs

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.

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.

The war in Ukraine, as well as sanctions against Russia, have resulted in a massive decline in the supply of major staple foods. This has led to a rise in food prices globally.

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

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.

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.

“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.”

The higher prices are fueled by a global computer chip shortage, increased labor and production costs, as well as supply chain delays.

Widespread economic repercussions

“The most immediate impact is likely to be increased inflationary pressures at a time when the cost-of-living squeeze is pushing up fuel and grocery bills. “The financial pain that households are experiencing could get worse, increasing downwards pressure on house prices.

War and oil prices

War can often lead to higher prices of oil because major conflict can threaten supplies.

What does the Ukraine war mean for the 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.

Prolonged or intensified war could cause significantly larger economic and environmental damage and greater potential for fragmentation of international trade and investment. The risk of financial stress also remains elevated, given high debt levels and inflation.

Between 2021 and 2022, car prices reached an all-time high because of factors related to the COVID-19 pandemic. Fortunately, prices are finally beginning to drop. Based on recent industry data, used car prices dropped from August 2021 to August 2022.

Rising energy prices

High prices are being passed over to consumers at the pump, in their gas, heating and electricity bills. And high energy prices contribute to increased cost of virtually all goods and services further fuelling inflation expectations.

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.

When new car production resumes, prices for new cars should fall. According to recent industry data, this might happen as early as 2022, with the market returning to normal by the end of this year or early next year.

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.

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.

Car prices have been climbing steadily for the last two years, as a shortage of parts, particularly computer chips, has limited supply in the face of strong consumer demand. Those higher prices have been a major factor in overall inflationary pressures since roughly 40% of US households buy a car each year.

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.

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.

The war in Ukraine is set to cause the "largest commodity shock" since the 1970s, the World Bank has warned. In a new forecast, it said disruption caused by the conflict would contribute to huge price rises for goods ranging from natural gas to wheat and cotton.

Beware of panic buying at high prices

Since the invasion, prices of Russian-produced resources like oil, wheat, aluminium, and nickel have surged as traders anticipate that supplies will become harder to get hold of in the event of a prolonged conflict.

The impact of the war in Ukraine on energy prices: Consequences for firms' financial performance. The Russian-Western standoff due to the invasion of Ukraine has produced an unprecedented increase in energy prices, especially in Europe.

Though war and defense spending can amount to a sizable portion of the U.S. GDP, wars often have little sustained impact on stock markets or economic growth at home.

“Your money is safe inside a bank. Bank deposits are insured by the FDIC and are protected up to at least $250,000. The best place for your emergency fund is a money market account or savings account. If you want to keep some cash at home, that's fine, but I don't recommend cashing out your savings.”

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.

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.

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.

The Ukraine conflict is likely to have a continued inflationary impact on the costs of raw materials, energy, logistics, and digital services. Oil and gas prices, in particular, have already skyrocketed across the globe due to the high dependence on imports from Russia, the supplier of 40% of Europe's gas.

What does Ukraine supply to the world? ›

Agricultural products are Ukraine's most important exports. In 2021 they totaled $27.8 billion, accounting for 41 percent of the country's $68 billion in overall exports. Ukraine is normally the world's top producer of sunflower meal, oil, and seed and the world's top exporter of sunflower meal and oil.

Disrupted supply chains and resource shortages are among the factors that could contribute to making the US's already high inflation worse. And with oil and energy costs going up, it could get more expensive to buy things overall.

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.

“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.

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.

The Russia-Ukraine conflict is responsible for rising fuel prices because supply chains, particularly those of crude oil, have been disrupted, Union Finance Minister Nirmala Sitharaman on Friday said, while replying to the debate on the Finance Bill, 2022. The Lok Sabha cleared the Bill.

The Ukraine conflict and the resulting sanctions on Russian oil and gas have resulted in windfalls for oil and gas producers such as those in the GCC as Western states sought to wean themselves off reliance on Russia. Zawya asked analysts what an earlier-than-expected end to the conflict would mean for oil producers.

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.

NEW YORK (AP) — Stocks gave up early gains and closed broadly lower Friday, capping a turbulent week of trading on Wall Street as uncertainty about the war in Ukraine and surging inflation continue to roil markets. The S&P 500 fell 1.3% after having been up 0.7% in the early going.

According to the Economist Intelligence Unit, the war will affect Europe's tourism industry in four ways: a loss of Russian and Ukrainian tourists; restrictions on airlines and use of airspace; higher food and fuel costs; and a big hit to traveler confidence and disposable incomes.

How is the war in Ukraine affecting car production? ›

How is the Ukrainian war affecting car production? Already much has been made of the challenge around oil and gas supply chain disruption, since Russia supplies 40% of Europe's gas supplies. For the automotive industry, the upheaval continues on four fronts; raw materials, production, sanctions and logistics.

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.

Although the stock market produces volatile returns, it has a long history of outpacing inflation in the long run. So, if the money you have invested in the stock market isn't going to be used in the next few years, it's likely safer to keep your money invested than to take it out.

A bunch of related bad economic news has hit car buyers pretty squarely: Rising inflation has pushed prices up, the Federal Reserve's interest rate jumps have pushed auto lending rates higher, and supply chain issues have squeezed the availability of new cars, further driving prices up.

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.

A risk to the ongoing recovery of tourism

Russia's military offensive in Ukraine represents a downside risk for international tourism. It has exacerbated already high oil prices and transportation costs, increased uncertainty and caused a disruption of travel in Eastern Europe.

“It Is Absolutely Safe to Travel to Europe Now”

Unfortunately, Ukraine's neighbouring countries will, without a doubt, be affected by the war when it comes to tourism.