Are cars getting cheaper? There is hope, but…

Crisis in the global car market

Lately, car prices have soared that you will soon have to take out a mortgage to buy an iron horse. This is one thing, of course, but every joke contains only a fraction of a joke.

Five years ago, the annual production of cars reached 97 million a year, and this gave hope that the car has finally changed from a luxury category to something mundane and affordable, something like a washing machine or a mobile phone. Now few people remember the cost of mobile phones in the 90s of the last century, and then the price for them reached several thousand dollars. At the same time, the technical characteristics of the first mobile phones were very different from the ones we have now.

The crisis in the car market coincided with the coronavirus, in particular in connection with the lockdowns associated with the fight against the pandemic. Global car production fell by a record 20 million units in 2020 to just 77 million. This resulted in a shortage of goods in almost all countries and car prices rose. Russia did not escape this fate either.

Surprisingly, the rise in real car prices in our country coincided with the rise in prices in the United States.

What’s next?

Will auto production increase and markets reach at least pre-Covid levels?

  • First of all, car production is highly dependent on the international division of labour.

A typical car contains an average of 30,000 parts, if you consider everything in detail. These components are produced in different countries on different continents and delivered to the assembly line. It is easy to understand that a failure in the supply of components can and will cause a production stop. And the conveyor is easy to stop, but difficult to start. Incomplete cars just stand in open areas and wait for the missing components to finally show up.

  • Second, Component supply failures are caused by systemic factors that are very difficult to predict.

For example, in China, lockdowns of entire cities are being announced in connection with a new outbreak of the corona virus. No one knows how long such a lockdown will last and it is impossible to remotely manufacture components at home. The result is a shift in the queue for the production of a particular part, causing a knock-on effect in car assembly plants around the world. Of course, almost any part can be replaced, you can find another supplier, but this will take time and additional costs.

  • Thirdly, the logistics market is also in turmoil. The price of the delivery of a 40-foot sea container from Chinese ports to American ports ran up to 18 thousand dollars! You can estimate how much shipping costs will now be added to the cost of the goods.

And the same containers come to us with Chinese tires, for example. That’s why they’ve gone up in price.

But even if the customer is willing to pay for the container, he will have to queue – either there are no free containers, or the ports are overloaded, as they fulfill the collected orders. You can wait a month or two… This is also having a strong impact on automakers as it is now completely unclear what kind of inventories should be done to insure against the risks of late delivery of components.

All this leads to a reduction in car production and an overall increase in costs, resulting in higher prices.

What to expect?

International analysts openly state that new car prices will stop falling and will gradually rise, with production set to be around 80 million units per year at best.

Of course, not everything is so sad. Our country has production facilities, and it is purely theoretically possible to produce enough cars – with a reasonable approach, organize the production of components and expand cooperation with friendly countries.

In addition, as usual, new loan products come to the rescue. But how quickly this complex puzzle will come together is a mystery.

  • How will the Russian car market change? Expert opinion here.
  • Spare parts and consumables under the TM “Za Rulem” can be bought in bulk and small in our company store.
  • “Driving” can also be read on Viber.

Source: Z R

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