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The Impact of Inflation on the Automotive Repair Industry

The impact of inflation on our lives at this time is readily apparent. Any time we fill our cars up with gas or go to the grocery store we directly feel the effects. The US Bureau of Labor Statistics reports the Consumer Price Index (CPI) for each month. This is the average percentage of price increase for consumer goods as compared to the same month on year prior. One important fact to consider is that the CPI excludes food and gas which are considered volatile and thus would SKU the number. Unfortunately, these are the areas that affect our lives the most. This makes the reported number unreliable for the consumer. Further the index is a national average and may differ considerably from regional rates. However, there’s a good deal of commonality in the causes of inflation for all.

In economic terms inflation is tied to supply and demand. Economists say it’s a result of “too many dollars chasing too few goods”. Most economists lay the blame for increased demand on excessive government spending. The term ‘Deficit’ refers to the amount the government spends over and above the money they take in for any accounting year. This amount gets added to the federal debt. The last time the federal government spent less than it took in was 2001. Since then, the government has run at a deficit in the billions every year. When the Covid pandemic hit – the amount of deficit spending increased dramatically to the point that over 7 trillion dollars was added to the debt in three years. It can be disputed whether these actions were the right thing to do or not but adding this much money into the economy leading to a sharp increase in demand is apparent.

For years OPEC (Organization of Petroleum Exporting Countries) have set the price of oil by controlling supply. To generate a price increase they decrease production. In 2019 the United States reached the point of energy independence and the price of oil decreased to $64 a barrel (pre-pandemic). At the time of this writing the price of a barrel of oil is $96. That’s a 50 percent increase. This results in higher gasoline prices which ripple through the economy. Not only does this result in higher prices at the pump but everything that needs to be transported (such as food) is affected. All petroleum-based products including fertilizer or anything rubber has increased in price.

The impact of inflation on the automotive repair industry results from a number of factors. Vehicle owners are feeling the pinch as they can buy less with the money they have. In times like this people will delay having work done on their vehicles. Costs are increasing in terms of labor, parts and operating expenses. When these costs are passed on to customers it can result in a drop in sales. The cost of capital is higher due to increased interest rates causing the cost of equipment and machinery to be higher. The impacts of inflation on an automotive repair business are numerous and together they present a challenge that can only be dealt with through diligent and effective business management.

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