The Indian Rupee has fallen by nearly 8 percent to the US Dollar (USD) since January, severely impacting the businesses of import-dependent automotive companies.
The Indian currency hit an all-time low of Rs 77 against the USD earlier this month, a fall from Rs 71.36 recorded in the first week of January. This was triggered by poor foreign investment inflows, strengthening dollar and crumbling stock markets.
While there are fears that the Indian currency will fall even further to Rs 80 it has put pressure on automotive companies especially luxury car makers who rely heavily on imports. It should be noted that these carmakers had to hike prices with the changeover to Bharat Stage VI norms from April 1.
Mercedes-Benz, BMW, Audi, Jaguar Land Rover and Volvo sell cars in India after importing fully built units of the vehicles or through the import of knocked down kits that are later put together at a local factory.
An 8 percent fall in Rupee should trigger an 8 percent rise in prices of their vehicles however due to current demand situation the companies are holding back the increase.
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Balbir Singh Dhillon, Head of Audi India told Moneycontrol, “Audi India is absorbing the impact of currency fluctuations for the moment and not passing it onto the customers. We will decide subsequently, if we need to do so.”
Audi, a Volkswagen group owned German brand, is one of the top four luxury car makers in India. Last year Audi saw sales slump by 29 percent to 4,594 units compared to 2018 as slowdown became one of the primary reasons behind the fall.
Rival Mercedes-Benz, which as per 2019 sales numbers is the market leader in luxury car segment, has also felt the pinch of the falling Rupee. However, no decision on a possible upward price revision has been taken just yet.
Martin Schwenk, managing director and CEO, Mercedes-Benz India said, “The weakening of the Rupee is a matter of concern and we are watching how the situation further develops.” Mercedes had hiked prices by up to 3 percent in January to offset input cost hike.
Mercedes-Benz locally assembles 10 models from its Chakan, Pune-based factory and imports four models in addition to a full range of AMG models from Germany. The company witnessed 11 percent contraction in sales volume in 2019 to 13,786 units as compared to 2018.
Chinese-owned Swedish brand Volvo is the smallest of the five biggest luxury carmakers in India. The slowdown and absence of certain models led to a dip of 15 percent in Volvo’s volumes for 2019 to 2,253 units.
A source from Volvo Cars India said, “We are not looking at a price hike basis the current situation. We of course don’t know what will happen tomorrow.”
While Audi, Jaguar Land Rover, Volvo and Lexus did not reveal sales for the January-March quarter Mercedes-Benz and BMW collectively posted a decline of 29 percent during the quarter compared to the same quarter last year.
Given the poor buyer sentiment, coupled with demand uncertainty due to the coronavirus pandemic, luxury car volumes will most likely record a new multi-year low this year given that there is expected to be no revival on the cards till September.