How Inflation Affects the Car Industry and Finance


Automobile inflationGrowing inflation is one of the most serious issues that governments, monetary bodies, consumers and businesses are facing today. Many industries are having major problems due to rising inflation and the car industry is no exception. Rising costs for manufacturers invariably means that these costs have to be covered and it is usually the consumer who’s paying for it through increased prices. As a result the cost of car finance also goes up.

Inflation has always had a severely detrimental affect on the car industry. The market as a whole can stall badly and every sector linked to vehicle production and manufacturing is affected. But not only these sectors suffer. Vehicle dealers, employees and finance brokers are all affected.

What is Causing Inflation in the Car Industry?

This rising inflation within the car industry is not just caused by the higher costs of materials and weaker Western currencies. Constant, new safety regulations inflicted on the car industry are contributing to inflation increase and pushing up rates of car finance.

Governments and Health and Safety boards claim that these regulations actually save thousands of lives each year. Many people will dispute these numbers. New emission limits increase costs even further so in response these are passed on to consumers. Although  generally the passenger vehicles are safer and greener, the big picture hasn’t changed much – millions people are dying in car accidents every year and transport is still the biggest contributor of human-generated CO2 emissions worldwide.

Independent industry analysts in the US have stated in a report that strict new fuel economy standards in the US could damage the US car industry by pushing up costs too rapidly. At present in the US car manufacturers are expected to achieve a fuel economy average of 34mpg by 2016 but in 15 years time the proposed target is 60.1mpg.

Some experts predict that the average price for a car will increase by about 15% in the next five years and a further 15-20 percent in the next ten years after this.

In previous occasions of high inflation car manufacturers have tried to deal with the problem by extending bill payment plans from 24 months to 36 months for example.

What Higher Inflation Means for Consumers

As a result of rising car prices and the higher cost of finance it is likely that consumers will keep their vehicles for a longer period of time. This may make sense for the buyer as modern cars are built to extremely high standards and have a long life span.

Another consequence is previously lower priced cars will move up the price scale. This has been witnessed in parts of Europe already. It is expected that many new cheap cars will enter the market, built in Asia, where labor costs are lower. Manufacturing in the west will suffer because of this. Countries such as India, China, Russia and Brazil are just beginning their automotive ages and they’re ramping up the production capacities.

Unfortunately, the bottom line is probably higher costs for the consumer. the In the short term the car industry is facing many challenges with inflation perhaps being the greatest. Increased costs need to be passed on somewhere. The consumer will bare the brunt of these increased costs through higher prices and more expensive rates of car finance.

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