Why are automobiles getting dearer?

It seemed a long time ago that you could have had a simple Volkswagen Golf for as little as 20,000 francs. In fact, not much time has passed since the strong Swiss franc made eurozone products so attractive in 2015. Seven years later, our national currency is catching up with the euro again, but car prices have not fallen as a result. On the contrary, today you have to pay at least 31,400 francs for the basic model of the Golf.

Of course, you have to look at it in context. In 2019, there was a generational change in the compact car from Wolfsburg. There have also been equipment and engine changes since then. However, average new car prices in Switzerland increased by 28% between 2016 and 2021, from 45,215 to 57,850 francs. This sharp increase in price lists will continue into 2022, with average price increases averaging 3.5 percent. It’s–and this is an important note–always about average vehicle prices. Unfortunately, there are no figures on how much the Swiss actually pay for their new cars, including all options that require additional cost minus discounts.

ko2Circumstances cause prices to rise

Are automakers getting too greedy? No, even if car manufacturers are operating from a position of strength due to high demand, that is not the main reason for the price hike. Manufacturers’ model series is constantly changing, and the range never changes from year to year, so it’s not really comparable. It’s the shift to electric and hybrid models needed to mitigate massive CO22To avoid penalties that drive up average prices: “Manufacturers try to avoid penalties as much as possible,” says one expert who wishes to remain anonymous. “For this reason, they are pushing hybrid or electric models where possible.” For example, Mitsubishi had to offer only the two cleanest models in Switzerland, the Space Star and the Eclipse Cross PHEV, instead of the five that the importer was still offering in 2021. For this reason, the 7.65 percent price increase recorded since 2021 is not very meaningful.

The Tesla example shows that prices for new cars are strongly determined by the manufacturer’s model range. The average price for the American brand has dropped significantly compared to 2015 because the affordable Model 3 was launched in the meantime. Other brands like Opel were also a bit cheaper compared to the previous year.

While some importers trim their range with a chainsaw, others use careful hedge trimmers. At Volkswagen, some engines or basic equipment levels have been phased out. “Since the Swiss tend to buy the best models, there was no need to leave some equipment alternatives in the catalog,” explains Christian Frei, a spokesman for Volkswagen Switzerland. This indicates that prices are rising simply because Swiss customers have opted for more expensive variants.

The demand determines the price

Paradoxically, brands aiming to rise with their models are getting a boost from the current crisis among suppliers, that is, the shortage of semiconductors and problems in the production of cable wires. To some extent, the manufacturers have the reins in their own hands. “Price is determined by supply and demand,” recalls our anonymous observer. “There are a lot of people who need a new car, but the manufacturers can’t keep up with production at the moment.” Ford Switzerland confirms this assessment. “The unprecedented shortage of components, especially semiconductors, means that supply and demand are out of balance,” spokesperson Dominique Rosser admits. “This situation has an impact on production costs and inevitably leads to higher prices.” Although Ford sold 11 percent fewer cars in 2021 (1.1 million units), the manufacturer managed to increase its sales by 5 percent to $37.7 billion. On top of that, earnings rose 0.6 percent to 5.4 percent. And it’s even more exciting with the Volkswagen Group: in 2021 it increased its sales by twelve percent and made a whopping eight percent profit, an increase of 2.8 percent. Sales figures fell 4.5 percent in the same period. This is consistent with the company’s strategy to substitute some type of margin for volume.

The race for raw materials

The reasons for these price increases vary among car manufacturers, but there is one reason that affects them all equally: the explosion of raw material prices. A ton of aluminum traded for $2,267 in April 2021. Today, the same amount is asking for $3,443, an increase of 52 percent! The price of steel rose by 40% over the same period.

And the two metals are no exception, as the International Monetary Fund (IMF) has seen commodity prices rise by 72 percent since the start of the Corona pandemic. For the IMF, electricity is the reason behind this increase. “A rapid energy transition could increase demand for lithium 40-fold for electric vehicles and renewable energies,” the IMF explains. “On the other hand, consumption of graphite, cobalt, and nickel can increase by a factor of 20 to 25.” The problem is that supply develops much more slowly than demand. “Copper is the most important metal in this energy transition. Prices have been at record levels for 12 months and not a single new mine has opened,” wrote Damien Corvalin, a commodity analyst at Goldman Sachs, on the Lusine Nouvelle website. For the expert, the problems go further: “Low revenues in the sector, accelerated wages and energy costs lead to higher financing costs. In the case of aluminum, large investments will be necessary to reduce CO22– To produce neutral. This also leads to higher prices.”

In addition to the high prices of basic commodities, there are also logistical problems as the shortage of truck drivers makes it more difficult to transport vehicles to their destinations. “In order to find new drivers, carriers are forced to raise wages,” says Christian Frey. These additional costs are inevitably reflected in the final price.

Too early for the strong franc

But shouldn’t the Swiss franc, which has practically caught up with the euro, make the bill cheaper for Switzerland, as it was in 2015 and 2016? For VW’s Christian Frei, it is still too early to adjust prices: “We set an annual exchange rate with the parent company. We only change it if we find very large deviations over a period of two or three months.” Our anonymous industry expert also recalls that “price increases are not a phenomenon that affects only Switzerland, it affects all of our neighboring countries.” Unfortunately, the situation isn’t going to change anytime soon, as long-term perturbations (switching to electrical mobility) appear to be from just an intermittent crisis (semiconductor crisis). Pig banks at it.

What do you think?

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