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Rediff News  All News  » Business » Rupee hits automakers' export drive

Rupee hits automakers' export drive

November 02, 2007 18:16 IST
Hyundai Motors India hopes to export over 250,000 cars next year from India, twice this year's number. Yet, Managing Director H S Lheem said this performance will not be without its problems. In fact, ebullient exports may end up denting the company's bottom line.

That's because, at the start of this year, Hyundai's export plans had pegged the rupee at 45 to the dollar. Calculations went haywire as the rupee rose to 39.

Said a worried Lheem: "The rupee appreciated by 12 per cent and margins in exports are never more than 10 per cent. Until the government provides more export incentives we could have a difficult time."

Like Hyundai, other car makers are in a quandary. With domestic sales slowing, they would have liked to focus on exports, but a strengthening rupee is making overseas sales an unviable business.

Car exports from India are expected to touch a million by 2010, a shade lower than last fiscal's domestic sales of 1.3 million and nearly a third of projected production of 3 million.

Hyundai is the largest exporter; the others are Maruti, Mahindra & Mahindra (M&M) and Tata Motors.

M&M continues to export but is open to the idea of a re-look. "There will be an impact on profitability, but we cannot easily increase or decrease," said Pawan Goenka, president (automotive sector), M&M. "However, if the situation continues, we will have to take a hard look," he added.

Goenka said his company is already re-negotiating raw material prices and paring logistics costs.

Announcing its results on Monday, Maruti Suzuki India admitted that its bottom line had been impacted by the stronger rupee. But a company spokesman said, "Export commitments are firmed up at the start of the year and cannot be whittled down in a hurry."

Rupee appreciation is impacting two-wheeler companies too. An executive from TVS Motors, which exports to Latin America, Africa and Asia, said margins had dropped 4 to 5 per cent on a conservative estimate.

"The appreciating rupee has hurt us, but we cannot increase our final costs overnight to compensate," he admitted. The company had set an export target of 500,000 two-wheelers by 2010.

Rival Bajaj Auto, which exports 14 per cent of its two-wheelers, admitted to problems. "We are facing a crunch on our margins due to the appreciating rupee," said Ravi Kumar, its vice-president, business development.

Honda Motorcycles and Scooters India exported 20,000 units last year. The company's DGM, sales, Naresh Rattan, said export margins had fallen 5 to 7 per cent.

"If there is a fluctuation of 5 to 10 per cent then we try to adjust it with the target country by negotiations," he added.

Like others, the company is also negotiating with shipping lines on prices to reduce logistics costs. "We have also increased the prices of vehicles by 10 to 15 per cent," Rattan said.

Meanwhile, the Society of Indian Automobile Manufacturers  (SIAM) is already lobbying the government for more incentives.

Sugato Sen, director, SIAM, said, "The government provided some incentives to two-wheeler manufacturers, but four-wheeler manufacturers were largely untouched."

SIAM has proposed reintroducing the Target Plus Scheme, under which incentives are given on the number of vehicles sold, and cheaper finance for export consignments.

Surajeet Das Gupta & Swaraj Baggonkar in New Delhi/Mumbai