Russian invasion of Ukraine could mean higher prices for cars, computers

Published: Mar. 3, 2022 at 5:44 AM CST
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SPRINGFIELD, Mo. (KY3) - In the last two years, the microchip shortage that started when the pandemic hit has wreaked havoc on the automotive and tech industries. Now, as Russia’s invasion of Ukraine continues, it could cause more supply chain issues and higher prices.

“It’s gonna continue to be a problem,” says David Mitchell, Economics Professor and Director of the Bureau of Economic Research at Missouri State University. “Not only do you have Ukraine creating some inert gases like Neon and some other things that are needed for chip production, but you also have countries that are saying Russia is a no-fly zone. That increases the amount of time it takes to get parts from one part of the world to another. It also increases costs, increases delays. It’s another stack on top of everything else.”

Russia also supplies roughly 30 percent of the global supply of Palladium, according to market research firm Techcet. Palladium is a key component in catalytic converters -- meaning a deeper hit for the automotive industry. Mitchell says the full impact could take months for consumers to see.

“I don’t think it will be where you go to the store and there are absolutely no computers,” says Mitchell. “You might not have as great of a selection of computers. And the car lot may not have as many cars as you normally would have liked to look at. But, you’re essentially going to see that reflected in higher prices.”

In the last few days, powerhouses in the automotive industry, including GM and Volkswagen, have announced they will stop exporting vehicles to Russia. At first glance, that may seem like it would help with the supply of new vehicles. But, Mitchell says it’s not that simple.

“It’s not like you can take the car that you would sell in Russia and then turn around and sell it here,” explains Mitchell. “I mean you could, but it’s not really geared toward the American market. So it’s going to relieve a lot of pressure. Even if you could do that, it takes time to set up all that infrastructure. You can’t just flip a switch.”

It goes the same for microchips. There has been a push to increase U.S. production of chips since the pandemic hit, and there have been some big announcements in that space. In June 2021, TSMC started building a chip manufacturing plant in Arizona. In November, Samsung announced plans to build a $17 million chip manufacturing plant in Texas. And in January, Intel announced similar plans for a plant in Ohio. But all of those facilities are years away from coming online.

“That’s one of the interesting things about the “just in time” inventory system that was started in the 80′s and 90′s. Parts were getting where they needed to be, sometimes within days and hours of when they were needed. So the fact that that system is no longer in place means you need to move towards a system where you have inventories,” says Mitchell. “Doing that takes time to set up, and of course increases costs and prices.”

So what should consumers do now?

“My suggestion would be if you can hold off on buying those things right now, go ahead and hold off,” says Mitchell. “Or maybe try to find a used computer or a used car. If that’s possible.”

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