US auto industry scam: overpriced parts, repairs – Asia Times

US auto industry scam: overpriced parts, repairs - Asia Times

The US auto market charges customers for motor car elements, while pricing cars outside the&nbsp, collection of most US households. That keeps novel vehicle profit margins great. The industry makes up for stagnated sales of new passenger cars and trucks by selling pricey parts to customers who keep their vehicles on the road more. &nbsp, The cost of a new car has risen by about 40 % since 1991, while the cost of repair parts has roughly doubled, as the above table shows. The cost of car restoration, however, has tripled.

Almost three- quarters of Americans depend on their vehicles to get to operate, according to&nbsp, &nbsp, For most commuters, public transport is n’t an option. Cities in America lack the system to transport folks to their work.

Total revenues of US auto producers were a bit over$ 1.5 trillion in 2023, including parts sales of$ 230 billion, according to&nbsp, KPMG. But the profit margin on parts was 32 %, the accounting firm reckons, vs. a margin of 24 % on new vehicles. &nbsp, By redesigning components every year or two, the manufacturers keep them custom, scarce and expensive, forcing customers to give up for original products. &nbsp,

Because of the need for specialized skills to install new amazing parts, maintenance costs increase. Training in auto mechanics has slowed down in comparison to the manufacturers ‘ aggressive marketing of their own parts.

China’s 150 manufacturers, by comparison, use defined parts that are affordable and widely available, keeping maintenance costs low.

China’s burgeoning Vehicle business, which offers properly- made vehicles at a fraction of the cost of European manufacturers, puts America in a quandary. The American car industry is essentially a plot to defraud the people, and cheap imports may help to lessen the devastating effects of transportation costs on families. But Chinese imports&nbsp, may wipe out the American economy, simply as Japanese&nbsp, and German&nbsp, exports destroyed Britain’s car market &nbsp, a century ago.

The average period of gentle passenger vehicles in the US increased from 9 in 2000 to 12 in 2023. It increased most quickly after the Covid crisis in 2021 and the economic downturn in 2008-year. &nbsp,

The typical age of Taiwanese vehicles, by contrast, is 5.3 times. America is a sophisticated market, to be sure, and China has an enormous supply of initial- moment car buyers. But Chinese car prices are falling credited to&nbsp, manufacturer technology and economies of scale, and maintenance costs in China show little or no prices, according to resources in the&nbsp, island. &nbsp, China’s Consumer Price Index for “vehicle usage and maintenance”, the closest relative, has been almost unchanged since 2007.

With 20 moving elements in an EV versus 200 moving parts in an ICE, this is why Chinese vehicle prices are falling while US car prices are rising.

The huge difference in repair costs, nevertheless, is the result of what&nbsp, auto engineer&nbsp, Alan Smith&nbsp, calls “parts churn” – the&nbsp, intentional de- standardization of parts by auto manufacturers to pressure consumers to purchase expensive components from the manufacturer. &nbsp, I referred to his LinkedIn post on parts churn in a&nbsp, May 13 commentary, but his account deserves more elaboration.

Most Americans replace their older cars when they ca n’t afford new ones, which are typically$ 47, 000. The finance rate for a four-year new car loan between 2012 and 2012 ranged between 4 % and 5 %. In January 2024 it was 8.5 %. That’s$ 948 per month assuming a$ 5, 000 down payment. In 2019, the average cost of a car was$ 37, 000, the interest rate was 4 %, and the monthly payment was$ 723.

The average cost of insurance meanwhile rose from$ 1, 470 in in 2019 to$ 2, 543 in 2024. That’s another$ 90 a month. The cost of owning a new car, that is, has risen on average 7.5 % a year each year since 2019.

It’s no surprise that America’s car fleet continues to age: Consumers keep their clunkers running rather than pay&nbsp, another$ 300 per month per vehicle over the 2019 cost. There’s no escaping auto inflation, though: New car prices are exorbitant, but the cost of maintaining the clunker is even steeper.

New car price inflation reached its highest level in 2022, at 13 % year over year, and has steadily decreased since. But inflation in auto repair, which reached 15 % in 2022, remains at around 8 % year- on- year.

As Alan Smith explains:

Parts Churn is a relatively recent consumer blip. There are businesses that do churn, but not all do.   Nowadays, almost all consumer goods that can be repaired when they break are made using churned parts.

Parts Churn is the periodic but temporally random substitution of interchangeable, functionally identical parts from a previous set of parts that make up a vehicle, where the new parts have a higher price because of limited economies of scale and a higher defect rate as a result of the risk of random design or manufacturing error in the design and production of the new part. &nbsp, Parts Churn entails great costs to the consumer but&nbsp, offers no benefit in exchange for the large cost increase.

Design improvements or innovations are rarely necessary to replace parts churn. Rare is the situation where new technology is introduced that prevents the new technology from being incorporated into a part that will be interchangeable with the previous part.   Many industries produce products with gratuitous, non-interchangeable part redesigns that rarely benefit the consumer.

Smith adds the degree of churn to the following table, which displays the churn level of one component, airbag inflators. Between 2008 and 2022, for example, Ford Motor produced 675 different inflators, using them for between 1 and 4 years. The price of the part rose from$ 32.40 to$ 2, 339.23. That helps to explain how auto companies ‘ aftermarket profit margins are calculated.

The simplest way to eliminate the auto industry’s predatory practices, of course, would be&nbsp, to&nbsp, open the floodgates to imports. &nbsp, But the demise of America’s largest manufacturing industry would be devastating for the country’s manufacturing base. &nbsp, Donald Trump’s proposed solution probably is best: Put a steep tariff on Chinese auto imports, whether&nbsp, they come directly from China or via third countries like Mexico, but invite Chinese automakers to build plants in the United States and employ American workers. &nbsp,

For less than$ 10,000, China offers well-made compact cars like the Seagull, which is roughly the price of a new American car with a down payment. The quickest way to raise the standard of living for US working families might be to invite Chinese automakers to plant factories there.