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Amid a global crisis, how can Romanian import-export automotive companies protect their profits
The number of new car registrations in Romania soared at the beginning of the year, reaching 37.447 units, a 35.56% increase from the similar interval last year. Judging only by this number, the car industry is booming for big and small players alike. But what is lurking behind the scenes is a full-on crisis that few people know about – the semiconductor crisis. There is currently a shortage of semiconductors on the market – basically, substances with specific electric properties that are being used as a foundation for computers and other electric devices – and this shortage is affecting companies on all levels of the car industry.
Globally, car sales slowed down in 2021 after the pandemic caused, among others, a semiconductor shortage. Semiconductors, sometimes called microchips, include silicon, germanium, and gallium arsenide. While pundits were expecting a recovery of the market by 2022, the war in Ukraine further prolonged the negative situation. In fact, car sales are expected to hit a decade low this year globally, and there's no clear end in sight for any of the current crisis.
And it is smaller importers in the Romanian automotive sector, such as car parts shops and car repair shops, are most vulnerable and stand the most to lose. How come?
Inflation and market changes, all summed up
Well, add to the semiconductor crisis the rising inflation – 13.8% in April alone, the highest recorded in a European country this year, and consider the prospect that the official inflation rate will reach 12.5% at the end of the year, generating a drastic decrease in Romanians purchasing power. These two alone could be enough to spell trouble for many companies in the automotive sector.
"On top of these, the foreign exchange market has been seeing increasing volatility lately, as inflation has risen globally, not only in Romania. We've seen the Euro losing ground to the Dollar, now considered a safer currency. This cocktail of three, the semiconductor crisis, the inflation and the currency volatility, is putting a lot of pressure on importers and exporters in the automotive field," said Theodor Ștefanovici, Commercial Director for Romania within AKCENTA CZ, the largest European fintech to support small and medium enterprises with foreign payments and exchange risk management solutions.
A Romanian reality, the car repair and spare parts shop just around the corner is forced to adapt to the economic realities. Competition from the online stores is fierce, and higher gas and electricity bills each month drive managers to the edge of counting every cent.
The price of imported spare parts for new and used cars is directly impacted by rising inflation. So this is where AKCENTA's currency exchange service has proven to be a source of profits saver. AKCENTA's unique exchange rate calculation formula, with zero commissions and the free SEPA payments, are just a few of the instruments small and medium Romanian automotive companies see as beneficial for their businesses in the short term.
Going back to semiconductors, it's worth noting that Romania is struggling to attract one or two of the large producers that would manufacture semiconductors locally, hoping to cover both local and European demand. The Economy Ministry is also trying to attract foreign research centers that would work with local universities in developing joint research and testing projects.
Both are long-term endeavors, and companies that want a solution right now need to be financially savvy.
Meanwhile, car sales are further dropping globally, not because of a lack of demand, which was the situation during the pandemic lockdown in 2021, but because of the shortages that prevent the car industry from manufacturing enough cars to satisfy demand.
According to the Center Automotive Research (CAR), the drop will place the automobile industry at its lowest point since 2011. Buyers should expect an increase in vehicles and car parts prices, says CAR, as manufacturers and retailers keep their revenues and profits, despite the drop in sales. For small companies, especially those depending on foreign payments, securing the profits and cash flow for everyday business is not as easy. Therefore, most of them have started planning and taking steps to protect their margins with hedging instruments. It's a pattern AKCENTA specialists have recognized in the past year too. The Forward instrument, designed to fix the currency exchange rate for international payments in the medium-term, is what companies choose instead of the SPOT exchange. It introduces predictability in their business model and a level of control over the volatility in the FX market. Like any other hedging instrument, it bears its own risks. However, it's a cautionary approach to maintaining a business healthy in the current global context.
As for the Russia-Ukraine war, it seems we're still far from the end of it. Russia has been exporting valuable components for the car industry, and the country is one of the largest iron ore producers in the world. The Russian invasion also affected Ukraine's manufacturing of car cables, which had been supporting German car production. Ukraine is also one of the largest nickel and aluminum producers in the world, two valuable resources for car batteries and components for electric cars, which have become the norm in many countries already. Ukraine is also producing the majority of the neon gas globally – an element needed for already insufficient microchips.
While evolutions in the car industry are uncertain, over 1,400 Romanian companies choose to protect their assets and save money while making foreign exchange transactions. "Companies trading EUR 30,000 or more in foreign exchange a month can save up to thousands of euros a year using hedging instruments or simply running their current foreign exchanges through AKCENTA's platform - a secure environment enhanced by excellent rates, and low to zero commissions," added Theodor Ștefanovici.
The automotive industry is a traditional sector in Romania and a large one as well, employing tens of thousands of Romanians. While business is not easy, for big or small companies alike, its' the neighbourhood shops and ateliers that want to keep an open eye to the market's evolution as well as to connecting fields, such as fintech, that can help them thrive. For them, fintech solutions like the ones AKCENTA CZ provides are becoming more and more critical. They help increase profit margins and stabilize the yearly planning with more reliable predictions. Using financial instruments in running a business is a "must" for all the entrepreneurs who understand that flexibility is vital, either in building up their strategies or profitably exchanging various currencies.
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