It just can’t get worse than this. The falling rupee is not only going to be putting a lot of pressure on carmakers profit margins, it is going to rob you of spending cash to buy that dream car of yours. The Indian rupee has slid from Rs. 51.73 to the US dollar on October 5, 2012 to Rs. 59.70 per $1 on June 20, before strengthening marginally.
This falling rupee is really going to take a hefty bite out of the car market and out of your pocket. Here’s how it will affect you and carmakers alike:
Fuel prices will rise
As the rupee falls fuel prices will rise. That’s because India imports most of its crude oil to produce petrol, diesel and LPG. Oil companies will be paying more for these fuel imports and consequently will pass on this burden to you. Expect petrol and diesel prices to be hiked again next fortnight as the rupee continues to remain weak. Also read: Is diesel still the most attractive fuel?
Inflation will rise
This hike in fuel prices will further increase inflation, because most essential goods depend on road or rail transport. And since transport costs will rise, the cost of these essential goods such as vegetables, processed foods, clothes etc will all rise.
You would probably also have less spending cash to fork out for a car now, because the cost of other items too will rise. Prices of air conditioners, TVs, fridges, phones and other electronic items will all rise and if you’ve been considering buying these, you may have to push your decision on a car purchase even further.
Or you probably will have to settle for a lower variant than the one you were planning to buy because of the increase in prices. Also read: Will diesel cars still make sense once diesel price rises?
Raw material costs rise
For carmakers the falling rupee and hike in crude oil prices will lead to a hike in production costs which will eat into their profit margins. Although some struggling car companies may try and absorb some of this impact for fear of losing market share, others will have no option but to pass on some of this impact to the car buyer. Prices of steel, rubber and plastic will go up.
Carmakers that have a high degree of imported components in their cars or low localization levels will be the hardest hit as the cost of components will go up. Almost all carmakers, except for Mahindra and Tata have a fairly sizeable import component in their cars ranging from 15% to about 45% in most cases. This does not include cars that are imported as completely built units or cars that are imported in completely knocked down condition and assembled here – these cars are bound to face a steep price hike.
Dull festive season likely
If the rupee does not recover in the next couple of months before the festive season kicks in, the festivities are likely to be a bit gloomy. The discounts and deals you are likely to get will be toned down as carmakers too will be feeling the heat. Also read: Should you buy an SUV or a sedan?