MUMBAI: With the rupee depreciating over 20% in the last eight months, carmakers have adopted a two-pronged approach of aggressively localising and taking advantage of the devalued Indian currency to drive into new geographies. Carmakers like Maruti Suzuki, Hyundai India, Toyota and Volkswagen are looking at ways to expedite their localisation plans and some are adding new geographies and models on the exports front.
Volkswagen's Indian subsidiary has opened up a new market of Mexico for exports, with the company planning to ship about 25,000 to 30,000 units of Vento, its popular sedan in the next 12-18 months. For the German carmaker's Indian entity, this will be a huge fillip as the proposed Mexican exports would make up almost 20-25% of its overall production in its Chakan plant. In addition, the company is considering exports to Indonesia and Malaysia in the near future.
Toyota recently shipped a pilot lot of 400 units of its compact sedan Etios to Indonesia and it is eyeing more markets for increased exports. Hyundai is planning to open up exports of Eon and i20 to more markets.
Maruti Suzuki is incentivising sales in overseas markets to make the most of depreciating rupee while Ford India will be exporting EcoSport to over 37 countries.
Mahesh Kodumudi, president and MD of Volkswagen India, declined to mention specific exports market, but said: "The primary intent for setting up the Pune plant was to cater to the domestic Indian market. However, with economic growth stalling, domestic demand for automobiles has weakened at a record pace. Besides, with the rupee plunging, we are forced to re-think our strategy.
We are increasingly exploring more and more export markets. Currently, we are exporting CBUs and parts & components to over 30 countries with exports to many more countries in the pipeline." In a bid to reduce the import content, Volkswagen is also considering an option of assembling engines in India at its Chakan plant.
The company is aiming to increase its localisation in India from 70% to 85-90% in the next few years. "We are vigorously pushing forward activities related to increasing the extent and depth of local manufacturing of parts and components," added Kodumudi.
Over the last four months of this fiscal, likes of Ford India, Honda Cars India, Volkswagen and Renault have seen a significant jump, where as traditional exporting companies have posted lower single-digit to flattish growth. Maruti Suzuki is the only company which has posted a significant decline in exports, as a large part of it comes from Europe, which is facing a massive downturn.
For majority of MNCs, the localisation level hovers around 50-80%, depending on the model. The rupee deprecation is putting tremendous pressure on the margins and profitability, compelling companies to increase prices in the domestic market, which are already struggling. GM India, Toyota Kirloskar, Audi, Mercedes and BMW have partially offset imports and this ward off increased costs due to a depreciating rupee. For others, the pressure is building.
Maruti and Hyundai betting on more exports to offset depreciating rupee
"We are feeling the impact of the depreciation as the costs of our imports have gone up. With the automobile industry in a slowdown, raising prices has an adverse impact on sales. So, we are carefully studying the situation and the impact on our bottom lines," said Jnaneswar Sen, senior VP (marketing and sales) at Honda Cars India.
For Toyota, which does not hedge currency and has multiple premium models, the level of localisation is much lower when compared to the mass market players like Maruti Suzuki and Hyundai Motor India.
According to Sandeep Singh, deputy MD and COO for marketing and commercial at Toyota Kirloskar Motor, with every single rupee of depreciation Toyota loses about Rs 80 crore annually.
"As part of our short-term measures, we are reducing various costs internally like fixed cost, capital expenditure and travel expenses etc. In the long run, an increase in localisation and more exports will help in countering the falling rupee. We are accelerating our localisation of components.
Plus, we are exploring exports to newer markets like Nepal, Bangladesh apart from South Africa," added Singh. Hyundai Motor India, the country's largest car exporter, says while the rupee might have depreciated 15-20% in the last six to eight months, it is not easy to establish a new market or even localise a specific component in such a short time-frame.
"It is important to note that developing a new market forms a part of a long-term strategy of the overall business plan and is not a knee-jerk reaction to the prevailing economic condition, either in India or elsewhere. As mentioned above, we are working on opening up new markets, but this will take time," said Rakesh Srivastava, vice president sales & marketing, Hyundai Motor India.
Hyundai on its part is eyeing newer markets such as Latin America, Africa etc and it is looking at increasing the share of exports to Africa to about 37%, added Srivastava.
Experts caution that while the rupee has depreciated by 20% against dollar since January 1, 2013, that does not mean an automaker can gain as much from the exports as currency in some of these emerging markets bases have also depreciated.
Brazilian real has depreciated by about 15% against dollar in the past eight months; Indonesian rupiah by 16.1% against dollar; the Mexican peso has declined by 3.1% against dollar; Thailand baht by 4.8% and Malaysian ringget by 7.1%.
The only currency amongst the emerging nations to have appreciated against dollar is the Chinese Renminbi. The same has appreciated by about 2% against dollar since January 1, 2013, till date. Srivastava fears that while the rupee depreciation has a limited advantage, in the short term, continuous depreciation will have a reverse impact on pricing in the export market and an adverse impact on the input costs which may lead to a further drop in already stagnating demand in the domestic market.
The impact on the non-Japanese companies seems much more as Japanese carmakers had accelerated the localisation plan few years ago due to depreciating yen. It is offering them a little bit of cushion.
Maruti Suzuki has already seen its import content reduce to 19% in FY14 as against 26% import it had two years back and the companies strategy to localise 2-3% of its balance imports continues under a very strict watch.
Source:- economictimes.indiatimes.com
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