Car Industry Crash: Europe Falls Under Inflation

Aug 25, 2022

With evergrowing prices, interest rates, and inflation, vehicle demand is constantly fluctuating. As a result of this, the price of energy, logistics, and cost of raw materials are on the rise.

Europe’s automotive industry is one of the heavily affected industries by the changes in Europe’s economy. With the rise in inflation and interest rates, earnings are expected to hit a low that will likewise weigh on car demand. 

There is ongoing tension between customers and manufacturers as to whether it is the right time to purchase a vehicle or to increase their leasing contract ahead. This decision is majorly influenced by the surge in energy prices too. Recently, the chief financial officer of VW Financial Services made claims about inflation affecting Europe’s auto industry. BMW also issued warnings that their new-vehicle orders, mainly in Europe,  are slowly declining.

The CFO of Continental (a multinational German parts company), Katja Duerrfeld said “it will not subside anytime soon.”

It was clear from the outlook that the German car parts manufacturer would have to bear approximately €3.5 billion ($3.6 billion) in terms of cost of:

  • Raw materials
  • Logistics
  • Energy
  • International shipping containers sometimes increase by an eightfold

As the world moves into the second half of the year, economists estimate that recession is inevitable, and countries have no way out other than facing it head-on. It was also calculated that the UK economy shrank during the second quarter too. The Bank of England has now claimed that the UK has also entered a recession similar to the one that came in the 1990s. 

However, car makers fought through and were able to get along the drags for some while.

On the other side of the picture where most vehicles in Europe collapsed, big manufacturers like VW, BMW, and Mercedes-Benz achieved great profits because they learned the trick; limited production with high-margin models.

It is hard to say where the economy will be in the near future, especially due to the ongoing tensions in Ukraine, however, we shall hope to see it steady and return to how it once was.