Three factors are responsible for the price increases in the American new car market: the shortage of microchips, the COVID-19 pandemic of 2020, and Russia's attack on Ukraine in 2022. Let's take a look at each of these factors, how they have shaped car prices, and whether the current situation could lead to a car market crash.
In 2020, the world was hit by a pandemic. This event had a huge impact on the automotive industry. Because of the lockdown, many companies completely or partially shut down their operations. The workforce was cut down on. Therefore, starting from 2020, the production of cars and their parts has been much lower.
The second reason for the rise in prices of new cars is the shortage of microchips. The reason for this shortage is also connected to the pandemic and the increased demand for electronic devices that use microchips. Because of COVID-19, the production of chips has decreased. At the same time, people working remotely started using electric devices more often than before the lockdown. Regardless of what kind of cars a manufacturer puts on the market – electric cars, hybrids, or conventional internal combustion engines – microchips are used in all units: engine start systems, driver assistance, navigation, and multimedia. Modern cars are equipped with many sensors and all of them are controlled by microprocessors. Consequently, the production of new cars has slowed down, which has had a negative impact on their price.
The war in Ukraine also had a strong negative impact on the car market trends 2022. Factories in Ukraine were producing important electrical parts. Because of the shutdown of those factories, some automotive companies such as Volkswagen, BMW, and Porsche have been forced to slow down or even close down their production.
Some automakers have decided to suspend the production of cars and car parts in Russia. For example, BMW decided to halt the work of its factory in Kaliningrad.
The shrinking sales market has caused negative economic consequences for these companies. For example, Volvo has also stopped selling its cars in Russia. Therefore, the company has lost a part of its trade area.
On the other hand, the production of car parts in Ukraine has stopped. For example, the German factory Leoni, which produces wiring systems, stopped its operations in the cities of Stryi and Kolomiya because of the war. Despite the fact that Ukraine is not a major producer of cars and car parts, the closing down of even small factories has led to a significant shortage of parts for major German manufacturers.
COVID-19 and the war in Ukraine will come to an end at some point. But will car prices return to pre-COVID levels so quickly? Analysts say it will take several years.
