Car Prices About to Increase

Posted: May 30, 2008

Does the skyrocketing cost of gas have you thinking of buying a more fuel-efficient car?  Act fast.  Soon, you may not be able to afford one.

Autoblog reports, "We're going to see a big jump in the cost of buying cars, both new and used."  How can they be so confident car prices are going to rise?  "Easy. All you have to do is look at the cost of the materials needed to make a car," they write. 

Take steel, for example.  According to Autoblog, "It takes nearly a ton of steel to manufacture the average car," but "steel prices are soaring."  Forbes adds, "Steel producers are likely to implement further price increases in the third quarter of 2008."

Aluminum and aluminum alloys are taking the place of steel in many new cars.  Building with aluminum allows automakers to make a lighter car, which uses fuel more efficiently and handles with more panache.  But aluminum prices are also up.  Reuters reports, "China's insatiable appetite for aluminum is expected to grow as much as 30 percent this year, enough to keep prices firm."  Aluminum prices, in fact, have "outperformed copper…which has risen 23 percent" this year. 

Yes, there is a lot of copper in every car, as well.

And rubber.  The Economic Times tells us the cost of rubber is up "over 45% since January this year."  Even the balloon industry is raising prices.

Plastic is a major component of most cars, and one way automakers cut costs is by using plastic in place of more luxurious leather.  But "Dow Chemical, the huge Michigan company," that is the world's largest producer of plastics, "said this week that for the first time it had increased prices to all its customers globally by as much as 20 per cent," according to the London Times.

Beyond manufacturing, other factors are driving up the cost of the average car.  Bloomberg reports that BMW has announced that it "plans to raise prices in the U.S. by 1 percent because of the weak dollar," which hurts foreign companies selling cars in the U.S.  Since Americans are buying more foreign cars than American-made models, if manufacturers start to raise prices to counteract the weak dollar, the cost of the most popular cars will increase.

Americans are now buying more small cars than anything else, and those cars carry tight profit margins for automakers.  As car manufacturers struggle with low overall sales volume, they may be forced to raise prices on the few cars that are selling, in order to recoup losses on the ones that aren't. 

New federal fuel economy rules are also a factor.  Automakers are required to boost fuel economy and cut emissions, which is going to require changes to how they build cars.  Put all these factors together, and Autoblog makes the frightful prediction that "the average MSRP in the American market is going to come close to $40,000 in just a few years."  

So if you have to replace that gas guzzler, it might be better to act quickly.

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