At the launch of the locally assembled BMW X6 last week, we managed to posed a question to the Managing Director of BMW Malaysia, Alan Harris, on whether his company is able to maintain the existing prices of its cars in view of the weakened Ringgit. Mr. Harris’ answer in short was that if the current forex situation persists, car prices will rise “in not too long a time”.
Different strokes for different folks
The mechanics of costing a vehicle in Malaysia is a complex one. This editorial won’t pretend to be able to fully expound on how forex impacts car prices, instead, we will highlight a few salient points on why prices of cars are likely to go up sooner than later.
Each car company has its own modus operandi; some brands trade in US Dollar, some in Euro, others in Japanese Yen and so on, hence the impact may differ. But whichever the case, the depreciation of the Ringgit against major trading currencies is significant enough in that the cost of a vehicle – be it completely built up or in knocked down parts – is bound to go up, if not already.
Yes, car companies have some form of hedging mechanism in place to deal with forex fluctuations, but whether the pre-existing assumptions are sufficient to cushion the severity of the Ringgit’s drop is debatable. Suffice it to say, few manufacturers in the world would willingly take a hit in profits (i.e. by lowering the costs of its CBU units and/or CKD packs) in order to support a distributor or national sales company facing a local currency issue. In any case, the Malaysian car market isn’t nearly big enough on the global scale, even if all of us would like to think so.
So when will prices go up?
For existing models already on sale, that would depend on current inventories. Again, stock levels differ between car companies (the information is a closely guarded secret), but our simple guess would be one to two months’ worth (note that holding large stocks incurs higher cost of storage). If you’re on the wait list of a hot-selling model, best give your sales person the hurry.
However, it is the yet-to-launched new models (or in some cases, impending facelift models) that will give car companies the biggest headaches. Assuming that the forex hedge mentioned above somehow covers the rise in costs (unlikely), the gazetted price of a new model (as approved by Ministry of Finance) would still be subjected to prevailing exchange rates. And since duties are based on gazetted prices, the amount of tax levied on new vehicles would inevitably be higher, in line with higher gazetted prices.
Sorry if we lost you there, but what we are trying to say is that upcoming new models are likely to bear the brunt of the Ringgit’s downward spiral. Industry insiders we spoken to are of the opinion that if the Ringgit does not reverse its depressing trend, we would be seeing pricier cars when 2016 comes around.
Any upsides?
Proton and Perodua could step up their exports, or any brand that’s currently exporting or planning to do so in the foreseeable future. Otherwise, if you’ve been contemplating a new ride, the next few months might be a good time to strike a deal.
BMW Malaysia launched the CKD version of its X6 xDrive35i at their headquarters last week. Priced at RM666,800 (without insurance), it is approximately RM50,000 lower than the CBU version unveiled during BMW World in April. Kitted in M-Sport trim, the stylish crossover is powered by a 306hp/400Nm turbocharged 3.0-litre in-line six- cylinder engine, and is capable of 0-100km/h in 6.4 seconds, along with a 240km/h top speed.