Business News of 2014-04-30

Weak cedi dampens car sales

The mood in the car sales industry is sombre, as the country’s falling currency dampens demand and hurts profits.
Being one of the largest import sectors, the industry is directly exposed to the volatile exchange rate and car dealerships previously priced in dollars to hedge that risk. Even now, after the Bank of Ghana outlawed quotations in dollars, they still use the dollar exchange rate as a reference to price in cedis.
But with the local currency sliding against its American counterpart by the day, it means the dealerships revise their prices in cedis daily -- creating uncertainty and slowing demand.
Tagged as Africa’s worst-performing currency in 2014, the cedi’s more-than-20-percent decline against the dollar in less than five months is the worst since 2000, when the currency lost almost 50 percent to the greenback.
At its current rate of depreciation -- 0.3 percent every day on average -- the cedi could hit a trough of 3 cedis to the dollar by the end of May.
The relentless slide has been hurting the economy by stoking inflation, which rose for the seventh straight month in March to 14.5 percent.
“We don’t price in dollars, but we think in dollars,” said Wafim Deen Ahmed, the manager for Nissan products at Japan Motors Trading Company Limited in Accra. “If we give a customer a pro-forma invoice, the price is valid for just two to three days because if the vehicle was valued at US$10,000 and the dollar goes up, its price in cedis also goes up.”
Business is not like before, according to Mr. Ahmed, who said his company’s monthly average car sales have plummeted from 200 to between 100 and 120 since instability struck the cedi this year.
Ivan Okudzeto, who runs Southline Automobile, a used-car dealership trading buses and tractors on the Spintex Road in Accra, said sales have shrunk from between 10-20 every month to about two or three.
“If people get a quotation from us and go back to prepare funds to buy the vehicle, by the time they come back the price has gone up -- which is not our making because the price is based on the exchange rate.
“We have to increase our prices every day; and because this business involves huge sums of money, sometimes we have to increase the price by up to GH¢3,000 in just a day. All our profits are lost to the exchange rate.”
In the current period of high currency volatility, the issue of pricing is delicate in the car business because companies have to minimise exchange rate losses that could occur when they change their cedi revenues to dollars to pay their suppliers abroad.
Mr. Okudzeto said he imports from suppliers on credit, and that apart from the depreciating cedi, shipping costs and port-handling charges have increased, too. “If we don’t price to reflect our costs, our business will go down,” he added.
The business of selling cars has benefitted from Ghana’s sturdy growth for more than a decade, which has produced new members of the middle-class aspiring to tastier things including a car and their own house.
According to figures from the Driver and Vehicle Licencing Authority, the number of vehicles registered each year doubled from 2000-2010, a decade in which the economy expanded at 6 percent per annum.
But now high inflation and the weak cedi are derailing the march of more Ghanaians into the vehicle-owning middle-class, as they are priced each day out of that bracket.
Used saloon cars that were priced at GH¢15,000 before the year began now sell at GH¢22,000, said Maxwell Bonna, a dealer who sells the Toyota and Ford brands.
Even if a buyer funds the purchase through a bank loan, the amount borrowed must exceed the initial price quoted by the dealer as it will have gone up by the time the loan has been approved, he said.
Source: B&FT
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