The Korea Herald


Automotive market faces inflation risks

By Hong Yoo

Published : April 11, 2022 - 16:06

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(Yonhap) (Yonhap)
Inflation concerns are growing in the automotive market, raising prices of both new and used cars here.

According to a report by the Korea Automotive Technology Institute released Monday, Russia’s invasion of Ukraine is adding to ongoing chip supply shortages and resulting in a continuous price surge in cars worldwide.

The report predicted that the current inflation in the car industry could be prolonged, as carmakers are likely to face difficulty in securing semiconductors -- among other supplies -- whose key ingredients such as neon and palladium come from Russia.

Wire harnesses are also on a tight supply due to the suspended shipments from Ukraine amid the ongoing conflict there.

“Increased oil prices and shipping costs resulting from economic sanctions on Russia are aggravating inflation in overall manufacturing sectors including car manufacturing,” the report said.

For consumers, it has already become difficult to buy cheaper cars as carmakers are increasingly pouring resources into making vehicles with higher profitability such as SUVs, as well as bolstering responsiveness to toughened emissions regulations.

“It is difficult even for a new and highly energy-efficient combustion engine car to meet the Euro 7 standards to come into effect in 2025. So to meet the stricter emission standards, carmakers need to spend more to make most of their cars go electric,” the report said.

The report also pointed out that the industry’s overall push for eco-friendly premium cars could offer a boon for Chinese carmakers that appeal to drivers with cheaper prices.

“Less choice for cheaper cars could bring up a new issue of affordable mobility for low-income people. The government should review the vehicle tax system in response to changes in car purchasing capacity and seek support measures to reduce car production costs structurally,” the report added.