Foreign Exchange Rate

Fig 8 : Effect of increase in foreign exchange rate on Demand curve

Changes in the exchange rate affect auto companies in many ways. Auto companies that use imported
components, heavily dependent on export will be subjected to rupee depreciation risk.
If there is an increase in exchange rate crude oil prices will increase, ceteris paribus, and will shift the
demand curve leftward.

Supply
S= F (Price of Vehicle, Input cost, Technology, Expectations about future price)
Price of vehicle:
• GST tax regime was implemented in 2017, a consolidated tax (18% to 28%) reduced the
manufacturing cost in 2018 and boosted production.

Input costs:
• Aluminium: LME of rolled products from FY 17-20 decreased from $ 3997MT to $ 3236MT
leading to more production.
• Glass: Price increased by 1% compared to the previous financial year of 2019, this caused a
reduction in production.
• Labour: In the context of Maruti, post-COVID, the labor wages decreased; however, the pandemic
with norms of social distancing, impacting the vehicular supply.

Technology
• Machine vision: It involves the use of imaging processes such as 3D imaging, X-ray imaging, and
others. The manual inspection time is getting reduced.