It has been seen, since past examples, that rupee’s value is extremely uncertain and the current state of foreign exchange and trade shortage have made it especially concerning. Rupee is doubtful enough to lose 3.2% overnight – which has terrified the biggest commercial troupes in the country.
Auto part producers have worried over their concerns on this indecision as they too are affected by it. It’s not only the fright of “rupee might lose value” bothering them. What they are in fact anxious about is the “uncertainty” as the strength charts can spike in any direction in a really short time.
Their businesses run on heavy imports and stored inventory. Imports cost more if the strength of the rupee falls and that stored inventory loses its value.
What the Auto Industrialists Are Saying
“Rupee devaluation will affect all auto part manufacturers and their business cycles – this is a cause for concern,” said Pakistan Association of Automotive Parts & Accessories Manufacturers (PAAPAM) Chairman Mashood Ali Khan.
The payable-receivable period of auto vendors is usually very long. Most transactions are high-priced and on credit. Due to the nature of the content being sold, different costs are incurred such as delivery and holding.
Holding Up Payments
Auto-makers fear about an anticipated profit on a certain sale might change in the future if the rupee’s value falls.
“I fear auto companies would hold my payment for a few months in case the rupee depreciates suddenly. This can stretch up to six to eight months,” an auto vendor says.
An approximation shows that around 50% of the raw material used by auto vendors is imported.
Former PAAPAM chairman, Munir K. Bana, said:
“Rupee devaluation will hurt auto vendors just like it would hurt any other industry. All we want is that the rupee is allowed to depreciate gradually and not by a huge margin overnight.”
10% Decline Expected
Auto industrialists are looking forward to a decrease in the rupee’s value by the government. The predictable decrease is around 10%.
He added,
“Rupee devaluation will certainly make everything expensive, including cars.”
A few industry officials consider that the requirement is inelastic to some extent – a change in price does not affect the demand of the product significantly – therefore a 10% change might not affect consumer purchase of cars.
A Cause for Concern
For the time being we can merely wait and observe what the auto makers do once the Rupee falls. If you remember, the rupee is being artificially inflated with foreign exchange being pumped by the government. The moment the next government comes, in the future ,they will have to face a razor-sharp turn down in Rupee’s value which will be the reason a lot of problems.
