EUR/RON instability puts brake on car import business

At the beginning of the year the European currency won battle after battle with the Romanian coin. And financial analysts predict more difficult times for the local RON. One domain that would be hit hard by an exchange rate of 4 RON per EUR is the automotive industry. Car importers expect that this year company costs will increase due to the instability of the EUR/RON rate. Brent Valmar, GM of Porsche Romania, thinks that an exchange rate of 4 RON per EUR will cut purchasing power, which will damage all sectors of the business.
“The exchange rate instability will persuade all car importers to rise prices to face these unforeseen situations. These measures involve additional costs, which in the end will affect the customer,” he added. According to industry specialists, the premium brands of all importers will report lower results if the financial analyst's foresights become reality.
Catalin Gavra, GM at Romcar, says changes in customer behavior due to fluctuations in the exchange rate are already evident. “The impact which the RON/EUR rate could have on the local market is still minor and it is reflected in the client's behavior: customers currently have a tendency to postpone their decision to buy a car,” said Gavra.
Mazda, a brand that has entered in force on the local market, has aimed to sell 2,000 vehicles in Romania this year, almost double the 1,028 it sold last year. Cristian Rigu, country manager at Mazda, said, “Sudden variations in the exchange rate could hit Mazda sales, but we are talking about a phenomena which affects any player on the market and furthermore every importer from any industry, not only the automotive sector.” He said that the company would continue to develop its dealer network this year, and the objective by the end of 2008 was to reach 20 points of sale.

High prices and expectations
The instability of the exchange rate, although considered a threat, has put car importer officials to work, to come up with strategies which can be used in the scenario of 4 RON per EUR. Porsche Romania's GM told BR that the company will not use the bank service of hedging to cover the losses caused by the exchange rate fluctuations.
“To reduce the negative impact of the EUR/RON rate, the company will not modify the current prices, but will keep costs at an acceptable level and in order to maintain profitability and keep costs under control,” said Valmar.
Porsche Romania reported 3,958 new car registrations last month, up 17.3 percent from the same period from last year. In January 2007, Porsche Romania's sales rose by 23 percent. Some of Porsche Romania's sales in January 2008 relate to deals signed in 2007, which goes some way to explaining its decision to cut its growth forecast for this year from 10 percent to just 2 percent.
Meanwhile, Romcar officials said that the company was “analyzing all the possible strategies to reduce the potential effects of the EUR fluctuation, but such a strategy will be drawn up only when we consider it really necessary to face the macroeconomic changes.” Gavra added that, “Until that point we will focus on developing and reaching the targets set by Romcar for this year.”
Romcar has scheduled investments of EUR 30 million in 15 integrated complexes, which means both a showroom and a service unit. The firm intends to sell 26,000 cars, an increase of approximately 20 percent from last year.
Even if the financial analysts' predictions of the EUR/RON rate do not come to pass, opinion on the growth of Romania's new car market this year is split. According to industry sources, the Association of Automotive Manufacturers and Importers (APIA) is forecasting growth of 5 percent. Toyota Romania, however, believes that the overall market may grow by as much as 15 percent.

By Dana Ciuraru