Many automakers believed that the problems had already reached their climax and it seemed that 2022 would be the year that vehicle deliveries would return to pre-crisis levels. However, these plans have been thrown out of whack following Russia’s invasion of Ukraine, leaving the auto industry facing a larger crisis that is much more difficult to resolve. Matas Buzelis, automotive expert and head of communications for auto data company carVertical, shares his thoughts on the situation.
Damaged supply chains
Automotive industry expert Matas Buzelis points out that although Russia’s new car market is not the largest in the world, it plays a considerable role in the automotive supply chain.
Russia exports valuable components for the automotive industry. Germany, for example, depends on Russia for titanium, iron and palladium. Furthermore, with 108 million tons of iron ore produced in 2021, Russia is the world’s fifth largest producer of this material and a supplier to European steelmakers. The latter now face higher prices and possible difficulties in sourcing the metal elsewhere.
The Russian invasion has also affected the automotive industry in Ukraine. For example, German car manufacturers such as BMW and Volkswagen use a large Ukrainian supplier of wire harnesses. Furthermore, Ukraine is the world’s third largest producer of nickel and aluminium, two highly valuable resources needed for components in batteries and electric vehicles.
Finally, Ukraine produces almost 70% of the global neon gas needed for components such as microchips, which are already in short supply.
Harder to get a good used car
In 2021, it was already difficult and expensive to buy a used vehicle, and by the looks of things, it will be even more difficult in 2022. With a booming used car market, used car dealers are facing a lack of vehicles.
One of the main reasons for the current situation is the crisis in the first-hand car market. Manufacturers are beginning to limit the production of vehicles to continue manufacturing in smaller quantities, but more continuously. This change in the manufacture of new vehicles is slowing down the entry of vehicles into the used car market. Therefore, car owners are postponing the sale of their vehicles or choosing not to dispose of them.
“Those interested in buying a second-hand car now have more limited and expensive offers on the used car market. However, the limited supply of used cars doesn’t mean buyers have to give up procedures that protect them from scams. Rather, buyers should inspect the history of each used vehicle, as the selection is very limited,” says Matas Buzelis.
As carVertical’s head of communications explains, used car dealers are likely to buy what they can get and not pay as much attention to the condition of the car. The risk of buying a used car in poor condition may be much higher than it was a year or two ago, for example.
Unpredictable prices in the used car market
In 2021, used car prices had already reached all-time highs. Although they stabilized and even started to fall towards the end of the year, Russia’s invasion of Ukraine has created an unprecedented situation in the Eastern European used car market.
For years, used car buyers from Ukraine flocked to Poland, Lithuania, Slovakia and Hungary. Although newer cars were in greater demand in the domestic markets of these countries, Ukrainians used to buy many cars that were more than ten years old, especially those with fuel-efficient but “dirty” diesel engines.
On the other hand, the reduction in the flow of customers will disrupt the market for used vehicles in the countries that border Ukraine. Prices for older cars are likely to decline as dealers try to mitigate their losses to accommodate the current situation.
The influence of fuel prices
Fuel prices have exceeded the threshold of €2 per liter in many European countries, sparking interest in changing daily habits.
“Increasing fuel prices will make some drivers use their cars less. People can reduce their annual mileage by opting for public transportation or other alternative means of transportation. A lower number of kilometers would translate into a lower number of accidents, which would save the costs of stepping on the accelerator, “says the carVertical expert.
This would reduce the number of vehicles on the road. However, higher fuel prices also increase interest in fuel-efficient vehicles.
For this reason, vehicles with diesel engines can charge interest, since their fuel consumption on the highway is unbeatable. However, this trend will be limited to countries without taxes on vehicles with more carbon dioxide emissions.
Rising fuel prices will encourage people to invest in used electric vehicles. Despite rising energy prices, the total cost of ownership for electric cars remains lower, and can be even lower if solar power is used to charge them. It is estimated that charging with solar energy saves between €600 and €800 per year.