The increasing cost of raw materials is not expected to subside for some time yet, although inflated prices will not be passed on to consumers, according to Alessandro Missaglia, managing director at global consultancy giants AlixPartners.
Raw material prices are forecast to average 10 percent higher this year, compared to 2020, before stabilising in 2022, as per the World Bank’s Commodity Markets Outlook.
And this is a view shared by Missaglia, who told Arabian Business: “I suspect this price increase in raw materials will stay for a while.”
Missaglia revealed that the increase in raw materials, including steel, aluminium, rubber, plastics, copper and glass, has gone up “quite considerably” in the car industry.
He explained that, in 2020 the average cost of raw materials per vehicle was $1,400, although this had increased to $2,580 per vehicle by August this year.
However, as the automobile industry continues its recovery, he didn’t foresee a price increase for consumers at the showroom in the Middle East.
Missaglia said: “It’s difficult to pass on these price increases to the end consumers because we’re currently in recovery trajectory.
“Especially in the Middle East, what we may see in the economy and medium class range, not high-end vehicles, will not be a price increase. We see a stabilisation in prices. Probably on high-end vehicles, maybe they [manufacturers] could be tempted to pass on some of these increases to the end consumers.”
In 2019, there were 90 million cars sold globally, although this took a hit to the tune of 14 million cars sold during the pandemic-ravaged months of 2020.
And while Missaglia admitted he didn’t foresee a full recovery until 2023, due to issues such as the current shortage of computer chips for one, he saw plenty of reasons to be positive about the Middle East market.
“Overall the Middle East is in a recovery path, but it’s a different picture in the different markets,” he said. “All the markets are performing better than 2020, of course, because of the pandemic. But particularly Saudi is getting close to 2019 levels with sales in September 2021 11 percent higher than in September 2019, while the UAE is still far from those numbers. It’s around 40 percent up from 2020 but still lower than 2019 by around 15-20 percent.”
He added: “An interesting phenomenon is that Chinese cars have taken over 25 percent of the car sector in Saudi Arabia with the support of attractive prices and a wide range of technologies and features they provide. They succeeded in achieving the difficult equation that combines quality, competitive prices and after sales service and moderate price of spare parts.”
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