Giant luxury carmakers likely to face maximum heat as rupee depreciates

Friday 25 November 2011, 10:41 AM by

The likes of Skoda, Volkswagen, General Motors, Honda and Toyota currently have two most noticeable things in common; first is a major say in the mid-size sedan and luxury vehicle segments, which gives rise to the second aspect. As a matter of fact, all these carmakers are expected to receive maximum blows from the weakening rupee that stooped down to unprecedented levels recently.

Since such companies deal with imports on a large-scale basis, the ill-effects of the deteriorating value of rupee are likely to trickle down to their margins. Companies that primarily target small cars, however, will witness fewer adversities, owing to the fact that the segment manufactures at least 80-90 per cent cars locally.

Giant luxury carmakers likely to face maximum heat as rupee depreciates | CarTrade.com
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Abdul Majeed, Auto Practice Leader at PwC was quoted as saying, “The midsize and premium car segments will be most impacted. The best thing is to localise as soon as possible. Most of the car companies here are importing some parts – overall 20-30 per cent is import content. Those who export have a natural hedge,” he added.

After giving much facepalms, reaching Rs. 52.73 against the dollar, the rupee showed signs of resurrection for the first time in eight days, closing at Rs. 52.10.

P. Balendran, Vice-President at General Motors India (GMI) reiterated that the major concern for the company is the fact that it is involved in importing its products in huge quantities. As a matter of fact, the engines for the Aveo, Optra and Cruze are imported and then assembled in India.

However, companies that deal with considerable exports from India, such as Hyundai, Nissan, Maruti Suzuki and Ford, will be able to cushion themselves against increased import costs.

“The depreciation has been very swift, 10-15 per cent over three months. We haven't seen any intervention by the RBI and expect the volatility to continue for 2-3 months. We have done some small hedges on the rupee, we'll be gradually doing more,” said Ajay Seth, Maruti Suzuki's Chief Financial Officer. He added that overall impact on the margins this quarter will hurt less than the last time, as the company has adopted techniques to defend itself from the brunt.

Companies which are highly active when it comes to foreign borrowings are also expected to be in the line of fire. Furthermore, they will face difficulties during repayments and thus, plans to restructure the funds raised domestically can be there on the cards.

“The rupee movement mostly affects our around $250 million worth of long-term loans, apart from the imports. We will see how it moves and will not take any immediate decisions. It is not possible to cover this higher cost totally through our exports,” said R. Sethuraman, Vice-President, Finance and Corporate Affairs, at Hyundai Motor India.

Thus, with recent news regarding the rise in prices by General Motors and Toyota Kirloskar making rounds, carmakers seem to take shelter amidst the scorching heat, turning as much stones as possible.