Friday, October 17, 2008

Currency Impact on Car Purchase

Anonymous said...
"Hi, would you be able to do an analysis between currency fluctuations and car prices / OMV / market / car distributors profits? With the current movement in korean / japanese currency, will be interested to know your thoughts. =)"

Well, I don't possess the knowledge and experience to make a good analysis of currency impact on those factors. I can give my layman perspective from a buyer's point of view:

1. Movement of Currency against S$
As the Korean Won has fallen against the US$ at a faster rate than against the S$, Korean cars should be cheaper now. However, there are other factors and time lack before impact from the rate change kicks in.

2. Distributors' profits
Distributors faced currency fluctuation risk but their exposure depends on the supply chain operating model. It depends on the inventory of cars being bought into Singapore ahead of the sales transactions. The distributor will be unlikely to lower the selling price if the existing stock is purchased at a higher exchange rate earlier. On the other hand, the distributor may hold the price steady even if the existing stock is purchased at a lower exchange rate - this is the case for the authorized distributor without any competition from parallel importers.

3. Profits made by Authorized Distributors versus Parallel Importers
Authorized Distributors usually have a higher operating cost to provide a better service level and also incur high advertising expense to increase the branding of the mark. The pricing strategy will also be dependent on the margin target at the point of sales versus after-sales servicing. Factors to be considered are the competitors' strategy, the availability of OEM parts and skills or technology required for servicing. The going concern of a parallel importer is an important criterion since there have been many reports of non-deliveries due to financial health and fraud - do your homework first before buying from the P.I.

I don't think you can time your purchase to an advantage of currency impact since there are so many variables in the motoring market. Affordability and suitability are more important criteria. Hope this is helpful.

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