Expect higher new car prices as a result of the Russo-Ukrainian Conflict

While the world is constantly ravaged by conflict, some have a more long lasting and global effect than others. The Russo-Ukrainian Conflict has been ongoing for a month now and we can expect higher new car prices in the future over and above the rising cost of fuel.  

Just some of the components needed to put a car together.

Many of the existing issues we are facing can be traced back to the onset of the Covid-19 pandemic, where lockdowns and curfews disrupted the automotive industry and their associated supply chains – particularly in China where the virus was rumoured to have originated from. Factories were temporarily shut down while ports and transport lines could not move vital cargo for production.

As a subsequent result of the pandemic and once the world started to get back on its feet to battle the virus, microchip shortages further hindered vehicle production as the electronics that are crucial in every new car suffered a massive supply chain issue. One that, almost two years down the line, it has still not recovered from. 

The latest development in a dramatic few years was the Russian invasion of the Ukraine which has now placed added strain on the automotive industry. We can expect higher new car prices in the near future as this unpopular war has restricted two major European players in the automotive segment from delivering raw materials and components crucial for vehicle production. 

As you can expect, a vehicle is composed of thousands of different components which are made up from a vast array of different materials sourced from a selection of foreign countries. Russia and Ukraine both provide European automakers with raw materials and subassemblies that are installed in new vehicles. The current crux of the matter and the root of the pending price hike lies with the never-ending and bespoke lengths of wiring harnesses that are installed in cars on a production line. 

It is not a high tech piece of equipment but Ukraine manufactures a large portion of Europe’s wiring harnesses. Michael Jacks, Director in European Automotive Research at BofA Securities estimates as much as 30% of total European output. As a result of the conflict, they can’t produce the designated amounts while export out of the country is almost impossible with the warring disruptions. 

Russia on the other hand, who may be on the receiving end of criticism for their autocratic leader’s belligerence still contribute to the automotive sector by providing many of the raw materials essential for production. The largest country in the world has reserves of aluminium, palladium and nickel which are mined and exported. Sharp price hikes of this commodity are expected to exacerbate new car prices even further. 

European car manufacturers are expected to experience delays in production with VW and BMW already ceasing operations at certain plants. Asian brands will likely be unaffected by the wiring-harness delays but the increasing price of metals will expectedly drive production costs up all-around. 

This means that we can expect higher new car prices locally while technology-focused European produced vehicles with extensive wiring will suffer greatly with delays. This could be the grand opportunity for luxury Asian manufacturers like Lexus and Infinity to steal considerable market share from the likes of Mercedes-Benz, BMW and Audi.

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