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November 2022

High energy costs: the impact on companies in the automotive sector

Davide Baldrighi

Increased labour and product costs risk imposing a significant burden on motorists, discouraging them from carrying out ordinary or extraordinary maintenance
Sky high bills are – unfortunately – the order of the day, not only for families but also for many small and large businesses that are affected by constantly rising prices.
The problem is two-sided. On one hand, gas is becoming increasingly expensive, which is yet another consequence of the war in Ukraine – caused by market speculation and the interruption of supplies – and on the other, there is runaway inflation on both sides of the Atlantic.

From big to small

Costs are increasing no matter what and affecting auto giants, including some of the German brands, which in order to comply with the request of Olaf Scholz’s government to save gas, may have to cut production. Whether and how this move could have an impact on final car prices – which have already risen recently – remains to be seen.
Meanwhile, for some production lines, several businesses have already warned workers about having to lower temperatures in factories, offering thermal clothing and heaters to protect them during the cold season.
Price increases in workshops is already considerably more evident. In order to cope with high bills and electricity and gas prices that have more than doubled in the space of a year, they have to raise their prices, as they are unable to fully absorb the increase in costs. The costs are passed on to the customer – the average price increase is around 20% - but they are unable to fully recover the increases in utility costs in the prices they charge.
This is also because, as we unfortunately know, the spending power of households has remained the same or has even decreased because of runaway inflation.
A vicious circle: increased costs for repairers and workshops, higher prices and customers who are less and less willing to spend money on their cars, which leads to further economic difficulties for the sector. The likely outcome is that the car fleet on our roads will not only be one of the oldest in Europe, but one that is also fitted with spare parts that are not compliant with regulations, in which inspections are overdue and so on. There is also the risk therefore that expensive energy becomes a road safety issue.

The solution

It is certainly not an easy situation and it has led to various trade associations issuing warnings to the Government and calling for substantial support packages for families and businesses.
A "temporary" solution, as recommended by several parties, might be the use of solar photovoltaic panels, to achieve even a minimum level energy "independence" in order to cut costs, while at the same time managing to lower the price of services for customers.

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