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Only Renault Samsung Smiles at Korean Won Appreciation
Beneficiary of Won Appreciation
Only Renault Samsung Smiles at Korean Won Appreciation
  • By matthew
  • July 17, 2014, 06:31
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The long-term appreciation of the Korean won creates different situations for Korean automakers. The sales profits of Hyundai-Kia Motors, GM Korea, and Ssangyong Motor are expected to drop due to the exchange rate, whereas those of Renault Samsung are expected to grow.

According to the industry on July 16, Hyundai-Kia Motors started preparing emergency strategies on July 14, ordered by Jung Mong-goo, Chairman of Hyundai Motors Group, as the won-dollar exchange rate dropped to 1,018 won, far below the 1,050 expected early this year.

Since exports account for 80 percent of the entire sales of Hyundai-Kia Motors, a US$250 billon loss is expected by the 10 won drop of the won-dollar exchange rate. After it reached its highest at 1,080 won on March 21, there is the possibility to temporarily drop below 1,000 won. As Hyundai-Kia Motors projected this year’s exchange rate standard at 1,050 won, hundreds of billions in losses is expected.

An official at Hyundai-Kia Motors said, “Hyundai Motors, which manufacturers the majority of its vehicles overseas, will be hurt less, but Kia Motors will be hurt a lot due to the high portion of domestic production. There is actually no specific solution for the exchange rate. We could only increase payments through local currency, other than US dollars.”

Probably this is why Chairman Jung emphasized “competitiveness” as the sole way to overcome global management risks. Hyundai-Kia Motors is very cautious in expanding overseas production, as this is a very critical management decision. The temporary exchange rate volatility shall not be the only reason for a major change.

GM Korea has no particular solutions for exchange rate problems either. The exact loss amount is not disclosed, but the exchange rate loss is inevitable as overseas office transactions are mostly done with US dollars, just like Hyundai-Kia Motors. The situation is very similar in Ssangyong Motor as well.

GM Korea and Ssangyong Motor are trying to minimize exchange rate losses by increasing transactions through local currencies such as the euro and British pound, instead of US dollars, in the overseas market. In GM Korea's case, the fact that Chevrolet exited from Europe hurts sales revenue, but unexpectedly benefits sales profit.

On the contrary, the appreciation of Korean won is very good news to Renault Samsung Motors. Currently, final automobiles manufactured from the Renault Samsung Busan factory are for the global sourcing of Renault-Nissan alliance. The Renault Group pays for those vehicles in Korean won, which means that the won appreciation could be beneficial to Renault Samsung Motors. In fact, the exchange rate gain of Renault Samsung Motors increased to US$5.1 billion last year from US$3.1 billion in the previous year.