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Mon, June 5, 2023 | 19:08
Business
Auto, electronic industries feeling pinch of strong won
Posted : 2014-06-01 10:34
Updated : 2014-06-01 10:34
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South Korea's automobile and consumer electronics sectors are feeling the pinch of a strong local currency that is forcing some to downgrade second-quarter earnings estimates, industry sources said Sunday.

The Korean won started to strengthen against the U.S. dollar in late March and rose to 1,020.1 won to the greenback as of Friday, compared with an exchange rate that hovered in the 1,060 won to 1.070 won range in the first few months of 2014.

According to Korea Automotive Research Institute (KARI), a think tank under Hyundai Motor Group, the world's fifth-largest automotive conglomerate, the auto industry will suffer 420 billion won (US$411.6 million) in lost sales if the won appreciate 10 won to the dollar.

It said the current exchange rate trend is particularly worrisome since the global car market has become extremely competitive.

"Concerns are mounting because rivals such as Japanese and German carmakers are pushing for greater sales with the introduction of new cars," it said.

Japanese companies such as Toyota and Honda have benefited from the weak yen, which makes their cars cheaper abroad, while German companies are capitalizing on productivity and market perception of their technological prowess.

KARI added that there is even a risk that the won may appreciate further and may trade in the 900 won range to the U.S. dollar late next year.

"There is a pressing need to reduce cost, develop new technologies and expand into new markets," the think tank said.

Other companies such as Samsung Electronics Co. are also being hurt by exchange rates, with many securities companies expecting weaker earnings reports in the second quarter.

Korea Investment & Securities Co. recently said sales of the world's largest mobile handset maker may dip to 55.2 trillion won in the April-June period from its earlier estimate of 56.5 trillion won.

It said the company's operational and net earnings will likely also suffer from unexpectedly rapid appreciation of the won.

Samsung Securities Co. and Hi Investment and Securities Co. also echoed this view and predicted that the tech giant will experience setbacks in earnings.

On the other hand, some industry insiders said that the fallouts may not be as severe as feared, because many of South Korea's auto and consumer electronics companies have insulated themselves against exchange rate shocks and set up overseas production bases that account for a sizable percentage of output.

In the case of Hyundai, only about 40 percent of its cars are made in South Korea, while Samsung has for some time diversified its currency of settlement, and currently relies less on the dollar for its transactions. This make it less susceptible to unfavorable won-dollar fluctuations. (Yonhap)

 
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