The automotive industry is a leading industry in the UK and worldwide, and one which has seen significant innovation and development in recent years. Positive as the outlook is for automotive businesses in a vacuum, they face serious pressures and potential difficulties – not in the least with regard to the movement of currencies. But how might forex impact the automotive industry?
What is Forex?
For the uninitiated, forex stands for ‘foreign exchange’, and refers to the market in which currencies are traded. The intrinsic values of national currencies fluctuate over time, and their relationships to one another change as a result.
There are some that use these market fluctuations to grow their wealth via shrewd investment and trading, but market movements have a much more widespread and profound impact on businesses. This is especially true for international companies and partnerships, where exchange rates and relative currency performance can have a strong impact on those companies’ standing and future performance.
The Falling Pound
The UK’s economic landscape is poor, as a result of numerous systemic and infrastructural issues culminating simultaneously. The coronavirus pandemic decimated portions of the economy, while the Brexit withdrawal agreement has reduced the UK’s international trade capabilities.
Meanwhile, a combination of Brexit and Russia’s invasion of Ukraine has led to the steep rise in energy costs – precipitating a rare inflationary event that has caused the Bank of England to raise its rate of inflation by the largest degree in 40 years.
Altogether, these economic events have had a catastrophic impact on the pound. Not only are residents and domestic businesses paying above the odds for goods and energy – with an effective devaluing effect on the pound – but the pound’s value has also fallen internationally. This gives businesses and consumers less spending power when buying internationally.
Impact on the Automotive Industry
Every industry has been impacted by the current economic situation, but the automotive industry is uniquely placed to bear a disproportionate level of difficulty. There are numerous factors in play, from domestic economy to international supply.
Manufacturers already faced difficulty in sourcing parts, as a result of ongoing microchip shortages. Dealerships and sellers, meanwhile, risk a squeeze on both sides as a result of the inflated cost of buying international supply, and the reduced appetite for big-budget purchases on the part of individual consumers.
Weathering the Storm
Where domestic manufacturers and dealerships rely on international supply, there are ways to mitigate the impact of changes to exchange rates on acquisition. Futures contracts enable businesses to hedge the cost of goods and products for a period of time, fixing prices and ensuring market spikes do not cripple the supply side.
