Inflation Is Causing Big Problems For Manufacturers

The car market is weird right now. A confluence of factors, including the pandemic, pent-up demand, an ongoing microchip shortage, and war have caused significant unpredictability in auto production numbers.

Many of the same elements are giving buyers pause, but inflation is wreaking havoc and could cause challenges for automakers down the road. A new study from eBay Motors Group found that around 20 percent of buyers in the UK are planning to delay their next car purchase due to increases in the cost of living.

eBay Motors Group surveyed 3,000 car buyers to find out how increases in various day-to-day expenses impact their car-buying decisions. Inflation has made nearly everything more expensive, and European countries are grappling with significant difficulties caused by Russia’s invasion of Ukraine. Though Americans were not part of the survey, we’ve got rising prices to deal with here as well.

Unsurprisingly, people are less enthusiastic about going into debt for a new car when they’re unsure what everything will cost the next day. In the UK, inflation has reached 9 percent, driven mainly by energy prices in the country. The Russian invasion of Ukraine caused significant disruptions in fuel supplies, as many countries advised less driving or placed an outright ban on Russian crude oil and fuels.

The war alone led to an increase of more than 50 percent in gas prices and more than 95 percent in electricity prices. While the study found that around 28 percent of respondents didn’t feel the squeeze of energy bills, 29 percent said they’d buy a cheaper car, and nearly 20 percent said they’d buy a smaller model. The problematic data point for automakers is that 23 percent of people said they would delay their next car purchase.

eBay Motors’ research also asked about insurance costs, taxes, retail prices, and fuel in the study. Most people said they would either downsize or lower their budgets in response to inflation, but that might not be the magic solution people need. Used car prices are up 20 percent in the UK, and new cars are still hard to come by.

Here in the United States, used car prices climbed 45 percent in 2021 to nearly $26,000 on average. The shift drove inflation, and in April, the US saw its annual inflation rate at 8.3 percent. We don’t have the same consumer-level study to draw from with American car buyers, but many less affluent buyers walked away from the consistently high prices seen across the new car market. Fuel prices are also a shock, but Europeans have been paying much higher prices for gas for years.

New car prices have held steady and may even be marked up in some cases. Dealers still lack stable supply, and popular models like the Ford F-150 Lightning tend to sell out quickly and generate huge waiting lists.