The many automobile manufacturers in and around this city, sometimes termed the Detroit of South Asia, have mixed feelings about the rupee's fall. It fell to another record low on Wednesday, to touch 68.8 a dollar.
On the one hand, it pushes localisation, as companies want to reduce imports. It also make exports more competitive in the short run. In the longer run, however, they say continuous depreciation will have a reverse impact on pricing in the export market and on input cost.
Component manufacturers have a mixed reaction, too. They're happy at the localisation push, as it means more business for them. Yet, they're also feeling the heat due to an increase in the cost of raw materials such as steel, aluminium and copper.
Hyundai Motor of Korea, the largest car exporter from India, has a manufacturing facility near this city. Rakesh Srivastava, senior vice-president, sales and marketing, says the rupee depreciation has affected the economy as a whole, and the auto industry in particular, with rising fuel and input costs.
With a little more than 40 per cent of Hyundai's total production being exported (about 260,000 cars in 2012-13, to about 125 countries), he says the rupee's depreciation was helping the company to a certain extent, in the short term. However, continuous depreciation will have a reverse impact on pricing in the export market and an adverse impact on input costs (it imports five to 10 per cent of components), which might lead to a further drop in already stagnating demand in the domestic market.
Hyundai mitigates the exchange risks with a combination of natural hedges and forwards. Sunil Rekhi, chief financial officer at Nissan Motor India Pvt Ltd, agrees like other major industries, automobiles is being affected. "We are looking at balancing our exposure through increasing our exports and higher localisation," he said. The company exports to 97 countries from the faciliity at Oragadam, 50 km from here, set up with its French partner, Renault.
Rekhi said the company was closely watching the industry trend and competition and would decide on the appropriate pricing at the right time.
"At the same time, we are always looking at options to reduce cost, so that our cars are competitive. Any change in price would be balanced between competitiveness and customer affordability," he said. Nissan has said 70-80 per cent of its parts are from local vendors and the aim was to increase that a little more than 90 per cent.
Fifteen kilometres away from Nissan's factory, US auto major Ford manufactures its models for both the domestic and export markets. Joginder Singh, president and managing director, Ford India, says the company monitors the fluctuations in the rupee and how it impacts the business. He says despite persistent market challenges, he believes in the long-term growth fundamentals of the Indian automotive industry.
However, the current business environment is challenging and the company has been monitoring the impact of various macro factors. "Currency fluctuations have been very volatile and we continue to monitor how it impacts the overall economy and, therefore, consumer confidence and, ultimately, vehicle purchase considerations," he said. He says over several months, the combination of persistently high inflation, stubbornly high interest rates and a depreciating rupee have resulted in lack of consumer confidence.
Daimler, the German commercial vehicle major, says this situation has vindicated its policy of pushing for localisation; at 85 per cent, this is far more than any other international manufacturer in its segment. So, the company is largely buffered from the currency fluctuation. Says a spokesperson: "So, yes, we are affected for the 15 per cent import material value but this is nothing major that worries us at this time."
Arathi Krishna, joint managing director, Sundram Fasteners, one of the largest automobile components manufacturers and part of the TVS Group, said the company has gained from the rupee depreciation so far, as 34 per cent of sales revenue came from exports. "It has increased our foreign currency earnings. We are looking at exports to the US to grow and our Rs 100-crore capital expenditure for the year is focusing on how to address the US market," she said.
She said the attempt was to reduce the dependence on import of raw materials wherever possible. Around 20-30 per cent of the raw materials were still imported.
Sundaram Clayton, another components manufacturer, said the company imports as well as exports. With significant exports and foreign currency liabilities, the company is always exposed to global currency fluctuations. However, it has a well-defined forex hedging policy to mitigate the risks.
