China's currency move a setback, not a calamity

Automobile stocks were not immune from the shockwaves that roiled the world's markets after China devalued the yuan by over 4 4% over a three-day span last week. Shares of Daimler, Volkswagen and BMW -- firms which are heavily dependent on China's high-end market -- each took huge hits, as did these of a few other automakers. Is this the beginning of an automotive apocalypse? Likely not. The devaluation definitely will compress international automakers' earnings -- and it should give a moderate increase to Chinese vehicle exports -- but it is not likely to inflate the car companies' long-term scheme. The selloff in automobile stocks "is a kneejerk response" by traders, claims Nigel Griffiths, London-based leader automotive economist for IHS Automotive. That is because all the automobiles that overseas auto makers market in China are also made in China. So firms like Volkswagen, Gm and Ford have an all-natural hedge against currency fluctuations. Last week, executives from Ford and General Motors Corporation said their firms stay focused on China's long term development prospects. Vehicle sales in China are nonetheless likely to grow to 3-5 million automobiles someday next decade, up from about 2 3 million this year. No automotive CEO will give on that marketplace. According to IHS, Volkswagen imported 250,000 automobiles in to China in 2014 -- several of them for the Audi manufacturer. A year ago, BMW imported 220,000 automobiles; Toyota sent 200,000, and Daimler imported 165,000, according to IHS information. Imports to China will shrink, says Griffiths, but the high-end automakers were cutting back their revenue expectations even before China devalued the yuan. In the springtime, China's delicate market started to damage vehicle sales, and most car companies have since cut their revenue goals. A de-valued yuan can make auto imports much higher priced, but the reality is high-end brands like BMW and Audi have loved high income in China, so that they have space to cut-prices. In the short-run, China's unstable market is the greatest worry for the planet 's automobile executives. By comparing, states Griffiths, the yuan's devaluation "is sound."

It's possible for you to reach David Sedgwick at [email protected].

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Daimler
Volkswagen

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17.08.2015
ID:2674

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