Price of Steel Could Hurt the Price of Cars

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Buying a new car could become more expensive in the approaching months. Last week, automaker Honda Motor Co. announced that higher steel and other raw material costs could cause the company to increase the price of their vehicles. Honda, along with Toyota Motor Corp. and Nissan Motor Co.,  shared expectations of an operating profit drop in the immediate future. Toyota Motor Corp. admitted on Sunday that they are “near a price increase accord with steel suppliers to offset the rising cost of raw materials.” According to Bloomberg, “To help offset rising costs, Toyota plans to boost the price of some U.S. models this month by 0.7 percent on average. Nissan in April raised the price of its Versa compact car and Pathfinder sport-utility vehicle. Honda on May 12 said it is considering raising prices in North America, Japan and other markets.”  

These announcements come at a curious time, considering a recent article in the Wall Street Journal about the end of the car maker boom, which is blamed on car manufacturers overestimating demand in recent years. “Automakers’ incentives were so enticing [in past years, when the economy was already sluggish] that people who weren’t quite ready to buy cars pulled their purchases ahead to take advantage of the deals. But that only turned future customers into present customers. When all those buyers are no longer in the market, sales dry up. The industry calls this Ëœpayback.'”

This “payback” has already caused several North American automakers to scale back production. It will be interesting to see if the price of steel, already affecting Japanese manufacturers, also has an affect on automakers around the corner — who are dealing with their own tough times. Stay tuned for more on this topic…

–Amy Edwards

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