"Expect To Pay More For Your Next Vehicle" Edmunds Daily

Expect To Pay More For Your Next Vehicle

Times are tough for the auto industry. Sales are down and the costs of raw materials are rising rapidly. The result is that the red ink has gone from a steady flow to a deluge for many suppliers, manufacturers and dealers. Over the last several years, costs and expenses have been reduced to the point where there is virtually nothing left to save. Yet the red ink still flows. The once less-than-tasteful option of raising prices is looking to be the only possible way to turn things around. This will eventually result in higher prices for the consumer.

The consumer is at the end of a manufacturing chain that has many links. The auto manufacturers assemble vehicles made largely from parts delivered by suppliers. Those suppliers, along with the vehicle manufacturers, make their parts from raw materials supplied by other companies further up the manufacturing chain.

It is these companies that have seen their raw materials costs greatly increase over the last year. According to Automotive News, the cost of plastic has increased 45% in 18 months, tires are up 20% in three months, oil is up 39% and natural gas is up 63% since January (both of which are used to make many plastic and rubber products) and the cost of steel has doubled since December. Not to mention that the higher oil prices have increased the cost of powering factories and transporting goods.

For dealers, things are also very bad. When it comes to new car sales, average dealer has lost money for the last two years. 2008 appears to be a continuation of that trend with year to date average losses double that of last year.

In order to survive, it is likely that raw material suppliers will have to raise prices. Since parts suppliers and the vehicle manufactures are already losing money, they may also have no choice but to raise prices. As dealers continue to struggle, they may be forced to discount vehicles even less.

All of these increases will no doubt have to trickle down to consumers. Just like what happened with the airline industry, with higher fuel costs now resulting in much higher fares and fees, losses and higher costs in the automotive industry may end up forcing consumers to shoulder more of the price burden than ever before in the form of higher sticker and transaction prices. Keep this in mind when deciding when to buy that next set of wheels.