German research: ‘Chip shortage drives up price of new car’

German research: ‘Chip shortage drives up price of new car’

German car manufacturers can charge higher prices now that demand for new vehicles still exceeds supply. This is the conclusion of the German economic research institute Ifo. Bottlenecks in the logistics chain and shortages of parts are the factors currently hindering production. Rising car prices are putting additional inflationary pressures on Europe’s largest economy.

The number of new car registrations in Germany fell by 10 percent last year to 2.6 million vehicles. That decline is largely due to the global shortage of semiconductors. As car production remains low and demand is high, car manufacturers can demand higher prices for their products, according to Ifo. In addition, according to the institute, car salesmen successfully explain the need for higher prices to customers. The suppliers of car parts are in a worse position, according to Ifo. After all, they would not have been able to push price increases through to their customers.

According to the institute, the situation for the German car industry is improving this year, but problems with parts supply persist. The fact that customers pay more for their cars is putting additional inflationary pressures in Europe’s largest economy: it stood at 6 percent at the end of last year and inflation has fallen much less than expected in recent weeks. Overall, due to the problems in the sizeable car industry, the German economy appears to be recovering more slowly from the pandemic than many other countries. Nearly one-fifth of all auto workers were sent on leave in December due to parts shortages, which prevented factories from operating.

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