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Car importers set to hang tough
$A’s giddy fall might hit motor vehicle import prices – but not yet
25 May 2010
DESPITE plenty of furrowed brows on the faces of import motor vehicles sales executives, the latest slide by the Australian dollar has not yet dealt a terminal blow to one of the golden eras of motor vehicle value for money in this country.
While the strong dollar and lower import tariffs have helped to lift car sales out of a potential recession in the wake of the global financial crisis by delivering the best-specified vehicles in history at comparatively low prices, the sudden reversal of the AUD’s fortunes will not necessarily be matched by an equally immediate upswing in price tags.
Most companies contacted by GoAuto say they are sitting tight to see how the situation plays out, and have been heartened by a slight reversal of last week’s exchange rate plunge that sliced eight per cent from the value of the AUD against the USD in a matter of days.
They say prices are unlikely to move upwards inside a month, maybe longer, as product pipelines and currency hedging can extend out weeks and months.
Even if the exchanges rates hold at today’s levels, motor vehicle prices might not leap as much as many pundits claim, as most motor companies had been trading above budgeted currency levels until last week’s dollar slide against all the major currencies in which the Australian motor industry operates, notably the US dollar, Japanese yen, European euro, Korean won and Thai baht.
In their back of their minds they would have known that the honeymoon would end sooner or later, and thus would have tried to build in a buffer.
Hardest hit might be vehicles traded in Japanese yen, against which the AUD tumbled 17 per cent in just three weeks, down from 88 yen to the AUD at the end of April to 73 yen on Friday before recovering to 74 yen today.
While the fall has been steep and dramatic, the question is: what rate had various Japanese car-makers budgeted for? GoAuto understands that some might have calculated their trade rate as low as 75 yen to the AUD this year, which would mean that the impact is likely to be confined to the size of the profit.
Even if companies such as Mazda and Toyota negotiated with head office to trade at the average yen exchange rate over the past 12 months – about 83 – the damage would be painful, not terminal.
Many European car importers could not believe their luck when the euro blew out against the strong Aussie over the past two years, hitting 72 to the AUD this month.
At least some of those are believed to have budgeted around 60 euro cents to the AUD, meaning they have been in exchange rate clover for months. Today, the euro was sitting at 67, meaning that despite a fall of about eight per cent from recent highs, they are still comfortably placed, even if they budgeted 65 euro to the dollar.
The advantageous exchange rates have allowed European mass manufacturers such as Volkswagen to price their vehicles head on against more mainstream products, such as those imported from Japan, while going for much greater market share.
Despite the latest exchange pressures, they are not likely to walk away from this position in a hurry, and the betting is that they will hold as long as they can, meaning rivals from Japan and elsewhere will be forced to hold too unless they want to watch sales volumes white-anted.
This in turn means that the Australian car-makers – who might enjoy the added protection that a weaker dollar provides against the importers who have taken a major chunk of local sales over the past decade – will not be able to raise prices as they would dearly love to.
However, if someone blinks, the price rise rush could be on in the new financial year.
The good news of a weaker AUD is that Australian exports will be more competitive, which will cheer up GM Holden and Toyota Australia as they try to revive exports volumes to the Middle East and, in Holden’s case, the US.
These two companies and fellow local manufacturer Ford Australia will, however, be impacted by rising import costs of both parts and CBU (completely built up) vehicles.
All three manufacturers import transmissions – one of the most expensive components – for their locally built Camry, Commodore and Falcon, for example. These extra costs will have to be factored into the car price.
Although Japan is the biggest source of imported motor vehicles in Australia, followed by South Korea, Thailand is the boom supplier of recent times, not only supplying some of the best-selling vehicles on the market – such as the Toyota HiLux, which topped the sales charts last month – but most of Honda’s range.
Such was the flight away from the AUD last week that even while shots were ringing out in the streets of Bangkok, the Thai baht was roaring up the charts against the AUD.
This month, the AUD slipped 11.6 per cent against the baht, although the various manufacturers mostly use other currencies such as the yen and USD in their trading with their Thai suppliers.
Honda Australia public relations manager Mark Higgins told GoAuto that while currently movement was a concern, Honda would not be reaching for higher prices just yet.
“We are sitting tight, waiting for the dust to settle,” he said.
“While the exchange rates are whipsawing like this, things are really hard to predict.” Several car-makers deal in the US dollar, which peaked above 93 cents in April, and had seemed destined for parity before the latest nervousness on global markets pricked the AUD bubble.
A fall of 12.7 per cent since then brought the AUD down to 82 cents – well below the 12-month average of 90 cents.
This not only affects shipments of American-built cars, such as Jeeps, Chryslers and Mercedes-Benz M-class SUVs, but also vehicles purchased in US greenbacks from other locations around the world.
One of the steadier currencies in the latest round of exchange shifts has been the South Korean won, affecting major playmaker in this market, Hyundai, and GM Holden. The latter imports mass-selling models such as Cruze, Captiva and Barina from there.
Since March, the won has gained only five per cent against our buck, and only 11 per cent since October last year.
The upshot of that is that Hyundai and sister company Kia should be under less pressure to move prices – news that the Japanese car-markers did not want to hear.
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