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Strengthening US dollar, weakening ringgit spells trouble for car buyers

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By Vish B

THE elation of starting a new year in which petrol prices drifted below the RM2 mark may be short-lived as car buyers are about to discover.

A small number of automotive brands already barely within reach for the average customer are about to undergo the automotive equivalent of displacement to a higher shelf.

These automotive manufacturers, which conduct business in US Dollars, either have or will increase prices in light of the recent surge in the value of the US dollar to the ringgit.

Thus far, Volkswagen Malaysia have officially announced price increases across its model range of between RM1,000 and RM10,000, citing recent currency developments as the driving force behind this decision.

petrolprice

Managing Director of Sime Darby Auto Connexion, Lee Eu San, estimates that a price increase of between 3-4 percent can be expected, taking into account the knock-on effect of duties being calculated as a percentage of a car’s market price.

It is known that Hyundai deals in US Dollars as well but thus far have not announced any plans to increase car prices in Malaysia. Nissan officials did not get back with comments on this issue by publication time on Tuesday.

The weakening of the ringgit and the subsequent unfavourable effect on the ringgit-US dollar exchange rate may be attributed in part to the stunning fall in the price of crude oil.

As an oil-producing country where crude oil accounts for 14 percent of exports this is enough to suggest that the strength of the ringgit is related to oil prices.

The relevance to Malaysia of this drop is the very reason behind the current low prices we are enjoying at the pump.

Unlike previously where subsidies were in place to manage petrol prices, it is crucial to understand that we are at the mercy of the decisions of OPEC supply policies.

For the moment then, we may be able to enjoy cheap petrol as a result of high supply, however the effect of the weakening ringgit is an unwelcome price hike in cars.

For those planning to hold off purchase of a new car from any of the brands mentioned above in the hope prices will fall, don’t hold your collective breaths.

Bar a change in other variables, it cannot be said with any reasonable accuracy whether an increase in the ringgit-USD exchange rate will effect a reduction on car prices further down the supply line.

Ultimately, a car manufacturer is answerable first and foremost to its shareholders and not its customers. Absorbing the cost of a weakening ringgit to maintain product pricing is simply too tall an order.

As far as the Malaysian automotive market is concerned, it might be financially prudent for the time being to consider the broad range of European and Japanese cars when making your next purchase.

Read more in CBT’S Buyers Guide distributed with this week’s New Sunday Times.

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