Monday, May 2, 2011

If You Are Planning on Buying a Car, Buy It Now

I already reported that supply shortages out of Japan would result in low auto inventories this summer, see here.

Popular Mechanics is reporting along the same line:
Six weeks after the March 11 earthquake and tsunami in northern Japan, there's still a lot of uncertainty among automakers about just how much damage has been done to the global industry's supply of components. One thing seems sure, though: You will pay more for a new car this summer than you would have otherwise.

"Prices will rise, generally," says industry analyst Jim Hall of 2953 Analytics. "Sometimes directly related to specific shortages, but also because the commodity parts will increase in cost due to the reduction of supply overall."

Japan's biggest automakers—Toyota and Honda—are most directly affected by damage done to the region's plants and suppliers by the earthquake, tsunami and subsequent nuclear power plant disaster. For example, Toyota's plants are running at about 30 percent capacity (the company hopes to be producing at full capacity by this fall). But sticker prices are going up industry-wide, Hall says. Simple supply-and-demand equations suggest that these makers' most appealing cars will cost more as dealers dole out the remaining inventory.

"Other automakers will take advantage of the situation," Hall says. "They'll raise prices because they can, because their competitors can't supply enough cars, so they can maintain or improve their profit margins in the interim."

Hall notes that Ford has bumped up prices as it introduces fresh products. "They say it's due to increased content in the car, but that's only true to an extent," he says. "They're also able to charge more because the Fiesta sets the new base line. It's absolutely going into improved profit." And if competitive products are in short supply, there's less pressure to maintain low pricing on the cars that aren't affected by the tsunami and earthquake aftermath.

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