Toyota, Volkswagen, Skoda, Honda and General Motors are have a lot in common at the moment. Not only are they all major players in the luxury car markets but they are also in a panic as the rupee goes into a massive decline. The ill effects of the sharply declining rupee could spell out a troublesome period ahead for all of these companies as sales figures look set to plummet.
The Deteriorating Rupee
Since the above comapnies deal with exports on a large scale, the deteriorating rupee is likely to cause them financial havoc. However, the companies that specialize in small cars will come across fewer problems as around 80-90% of the smaller cars are manufactured locally. This means that the mid-sized and premium car segments will be most impacted. Those who export will have a natural hedge but most car companies import 20-30% of their car parts.
Localizing vs. Imports
The rupee did however show some signs of resurrection after closing on Friday at 52.10 against the dollar. The major concern for these companies is the fact that they import products in such large quantities so the idea now is to localize their resources as much as possible. General Motors import the parts for the Cruze, Optra and Aveo before actually assembling the cars in India. Things look better for the likes of Hyundai, Ford, Maruti Suzuki and Nissan as even though they rely heavily on exports from India, they will be able to cushion themselves from the blow of the rupees decline.
Lending Problems
The volatile situation with the rupee looks set to stick around for at least the next 2-3 months and many comapnies are bracing themselves for what’s to come next. The movement of the rupee will also affect borrowing with Hyundai Motor India admitting it has around $250 million-worth of long term loans in place. The higher costs will not be covered by the exports alone and many comapnies will just have to wait and see how drastic the situation gets before they make any decisions.
China is also feeling the heat a little as its luxury car market begins to show signs of slowing. While the yen is not falling like the rupee, many rich Chinese people are refusing to splash out on luxury cars as the high luxury car tax in the country means that they pay more than three times for a prestigious car than you would in the US. With even the Chinese curbing their spending, it looks likely that the worldwide luxury car market can expect a decline in sales in the near future and as such, many luxury car manufacturers are already creating more affordable versions of their most popular brands…
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