More bumps ahead for auto market

DETROIT, Michigan－BMW has halted production at two German factories, and 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－the ongoing conflict in 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 conflict causing new disruptions, vehicle prices are expected to head even higher well into next year.

The conflict damage to the auto industry has emerged first in Europe. But production in the United States 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 to not be able to make a car," said Mark Wakefield, co-leader of consulting firm AlixPartners' global automotive unit. "Any bump in the road becomes either a disruption of production or a vastly unplanned-for cost increase."

Supply problems have bedeviled automakers since the pandemic started, 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.

Prices surging

In the US, the average price of a new vehicle is up 13 percent in the past year to $45,596, according to the online automotive resource site Edmunds. Average used prices have surged far more－they are up 29 percent to $29,646 as of February.

Before the conflict, 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 is forecasting fewer than 82 million this year 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 the 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 would prices eventually.

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 zone has hurt too. Wells Fargo estimates that 10 to 15 percent 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.

Agencies via Xinhua