Energy crisis may cause rise in car prices

• New car prices set to increase
• Global chip shortage to slowly ease
• 2021 saw lowest annual production since 1959

Record high energy bills are expected to drive up new car prices in the next 12 months. UK car industry watchdog, Society of Motor Manufacturers and Traders (SMMT) warns that the steep increase in manufacturing costs will force car makers to raise their prices to maintain profits.

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As household bills skyrocket, manufacturing plants are also expected to face up to 70% higher energy costs. This will come as a huge blow to many car makers who won’t be able to absorb the extra cost without increasing their prices. According to the SMMT, energy is the third-largest expenditure for UK car manufacturers, after staff wages and the cost of materials.

Speaking to the Financial Times, SMMT chief executive Mike Hawes said: “There were price increases last year, if higher input costs continue that will flow through into pricing… The margins on volume car producers are [already] wafer thin.”

This comes as another hit to an already struggling car industry. In 2021, 859,575 new cars were built in the UK - the lowest number since 1959. Global semiconductor shortages caused a sharp decrease in annual production, during what was described as a “very depressing year”. Many car buyers were forced to either endure long lead times due to the severe lack of new cars or turn to the used car market which, consequently, saw a steep rise in prices as well.

However, it is not all doom and gloom for Britain’s car industry. 2021 saw the largest investment into the industry since 2013 totalling at over £4.9 billion. Furthermore, there is an increase in confidence and support for the UK’s switch to electric. Electric car sales have risen in the last year by 72%, with zero and ultra-low emissions vehicles now consuming over a quarter of the UK new car market.

What does this mean for car buyers?

UK drivers have already seen a steep rise in costs over the last year; whether that be due to the fuel crisis, the implementation and changes to London’s Ultra Low Emission Zones, or the steep rise in used car prices. While the increase in the cost of new cars should be relatively small, this is still another hit to the wallets of already cash-strapped motorists. 

Thankfully, continued consumer confidence in electric cars can only be a good thing for budget-conscious buyers looking to step into a low-emissions vehicle. Over the next few years, more affordable electric cars are expected to hit the market, such as the upcoming ORA Cat hatchback. As new electric car sales increase, you can expect the used car market to be flooded with more and more electric cars, meaning that there will be plenty of options there too.

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