From soaring energy prices to shortages of nickel and neon, that the impact of Russia’s invasion of Ukraine will be felt throughout the car industry for years to come seems certain, even in the best-case scenario of a grudging peace agreement.
Most commentators are focusing on detailing price swings, interrupted parts supplies and the impact of the loss of access to precious metals and minerals, but the broader picture suggests that the war could act as a catalyst for changing the make-up of the car industry in more fundamental ways.
Pre-invasion, car buyers were already facing price rises of 10%-plus this year, based on the rising cost of energy and materials. That was on top of the fact that supply shortages have meant limited discounts are available (US data suggests average transaction prices rose 18.5% last year). With price rises and discount drops, a car was probably already going to be 25% dearer than it had been.
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But now the issues of energy and raw materials are more exacerbated, the only viable solutions being to open up new supplies, be it via exploiting previously uneconomic sources (such as opening new pipelines), new methods (like fracking) or investing in green energy sources. The merits of each can be discussed another day; what’s clear is all cost more than what went before.
Sure, given the reduction in discounting and reports of record profit margins, car makers could perhaps swallow some of that rise, but when you reach a point where you have to reduce prices to make your cars attractive enough to buy, you have to question long term whether it’s worth making the cars at all.
Already we knew city cars were under huge pressure, price rises to meet the latest regulations and wafer-thin margins having made them unattractive to many buyers and manufacturers alike.
But such is the scale of the latest impacts that they now cast the focus onto the viability of the next classes up, especially superminis and family hatchbacks.
Today, the Ford Fiesta costs from £17,000 and rises above £25,000; a 20% hike would push the range from about £20,000 to upwards of £30,000. The Volkswagen Golf starts at just under £24,500; a 20% hike would take it to almost £30,000 and the Volkswagen Golf GTI well north of £40,000. You get the idea. These best-sellers would suddenly look very pricey.
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I'm glad I'm much nearer the end of my motoring career rather than the beginning: Its going to be pretty miserable in a few years time for young/new drivers, when the choice of first cars will be limited to the same type of car that their parents and grandparents choose to drive. At least for now a 3-door Up/Fiesta/used Corsa offers a different look to the one your mum or Auntie might own.
Manufacturers used to be willing to bear the small profits, sometimes losses of their entry level vehicles with a longer term view, hoping the buyers they atracted could be cultivated to stay with the brand as their needs and income levels changed. Now, however, with all the big changes and uncertainty of the industry, and no doubt an eye to current shareholders, they're only interested in the short term position and producing the most profitable models. Lets hope there might be more than just Toyota to go against this trend.