Commodity inflation: impact on the automotive industry and catalytic converters
It's no secret that the automotive industry is going through a complicated period. Various shortages and high inflation have led to fluctuating sales. The impact of COVID is not negligible either, leading to slack periods that have had major consequences for carmakers.
The massive development of the electric car solves certain aspects as much as it penalises others, with one direct consequence: the question of lithium-ion availability. And what about catalysts?
Is the car industry still plagued by crises?
The history of the car industry is particularly complex. It is subject to crises and inflation. As a direct witness, it adapts, whether in terms of energy, size or even colour.
The more prosperous a period, the bigger and more colourful the cars! But behind this superficial observation lies a slightly more bitter picture, which is costing motorists more and more.
Two major crises have emerged in recent years. The first was the shortage of semi-components, which affected all electronics manufacturers. Our cars are full of them, so the impact has been devastating. Some car dealers were even forced to remove certain equipment from their cars in order to deliver on time.
At the same time, the ban on internal combustion cars in 2035 and the impact of the ecological penalty have led to an explosion in demand for electric (and hybrid) cars. Demand for lithium-ion has been exponential, saturating extraction networks and generating high inflation. And of course there are other consequences, such as the rising cost of electricity, the increasing scarcity of labour and the problem of battery recycling.
It is in this very complicated context that the automotive industry is evolving and trying to reinvent itself, while ensuring that costs remain "reasonable" for end customers. But it is in fact an entire sector that is being hit by raw material inflation.
The cost of spare parts is rising sharply
If your car suffers from a clogged DPFS, you're probably looking for new equipment. This applies to tyres, shock absorbers and even belts.
It's a fact: the entire automotive sector is in the grip of major inflation. Inflation varies according to the cost of metals.
In recent weeks, there have been significant falls in metal prices. Copper, aluminium, zinc and lead have all fallen sharply. However, this fluctuation is difficult to feel on the price of finished products. As a result, the latter are tending to rise, at the same rate as electricity bills.
According to UFC Que Choisir, the price of car parts is set to rise by 12.69% in 2022. With inflation having risen, it is unfortunately likely that this increase will continue this year. In fact, you can feel it when you go to the garage.
What impact will this have on the car industry?
The main impact of this inflation is felt when it comes to buying a new car. Prices have risen sharply across all segments, prompting motorists to lower their expectations or opt for a smaller car or a lower trim level.
On the carmaker side, the renewal of certain models is sometimes postponed and ranges are simplified. For example, the new Peugeot 3008 comes in just two trim levels, compared with six previously in the catalogue. This simplification of the range reduces development costs and standardises the offering.
Similarly, negotiating margins have become very small, if not non-existent.
This benefits authorised dealers, but also the development of leasing. Leasing means that you pay a fixed monthly sum for the use of a new car, for a set period and mileage. As a result, you are simply leasing your car, and buy-back is only possible under the LOA formula. Added to this is the fact that sales volumes are falling, and this can even cause problems for the distribution network.
In the final analysis, the entire automotive sector is in a complex situation. On the one hand, costs have to be cut, and on the other, massive investment is needed to meet environmental standards, particularly Euro 7.
What about catalytic converters?
Like all car parts, catalytic converters seem to be undergoing inflation, although it seems to be less than for other parts. The reason is that this anti-pollution equipment is mainly made of metal and other precious metals, which are slightly less sensitive to inflation. However, ancillary costs are rising, and manufacturers have no choice but to pass this on to the final selling price of the equipment.
More than ever, therefore, it is essential to choose a quality catalyst. And contrary to popular belief, it's not always the most expensive products that are the most durable and efficient..
What's next?
While the current situation is not necessarily glorious, it can be tempting to look ahead to the future. And that's where things get rather complicated.
As far as semi-components are concerned, new factories are beginning to spring up all over the world. It may take a while for them to perfect themselves, to become profitable and to be able to mass-produce. But this will undoubtedly have a significant (and positive this time) impact on the cost of electronic products.
As far as lithium-ion is concerned, it's hard to say for sure. Resources are plentiful, but extraction is complex, costly and polluting. The significant increase in demand for electric vehicles could quickly saturate demand.
Carmakers are trying to get ahead of the curve by focusing on other rare metals, but this remains a minority approach. All in all, the sector is evolving very quickly and is proving to be very sensitive to various crises, which are so fast-moving that it is still difficult to estimate and predict.
Conclusion
Inflation in raw materials prices is having serious consequences for the entire automotive industry. The impact is very real, and is weighing increasingly heavily on household budgets.
Unfortunately, we lack vision for the future. While interesting alternatives are being developed, the complicated context makes it difficult to make any forecasts. So in the short term, we shouldn't expect a fall in the price of spare parts or cars in general.
Inflation is set to continue in 2024, though probably to a lesser extent than in 2023.
Although real, tangible data is hard to come by, it would seem that solutions are emerging, both for semi-components and for lithium. And that's good news, because it could help maintain the momentum in terms of car sales.
And we all know how essential this factor is. It allows manufacturers to continue to invest and, potentially, to achieve economies of scale. Only time will tell if our forecasts are right!
Image sources:
Karolina Osinska / Author: NomadSoul1 / License ID: 3DP6ETBUF7 - elements.envato.com