Curious of how the vote to leave the EU and the drop in the value of the British pound will affect the the cost of British made exported cars?

 

It won't. Jag will continue to differentially price by market to optimize its revenues based on the price/demand curve in each market. Pricing based on cost is a fools errand. We will see no price reduction as a result of their currency devaluation.

 

From an Econ Perspective, It could drop the price on products that are manufactured in Britain or come out of Britain to the outside market like US, Europe, etc. There would be a decrease in demand causing the price levels go down a bit. The main question here is whether the demand for a premium car like Jag is in-elastic or elastic ? I would say demand is somewhat elastic for Jags in the free-trade market.

Nowadays, its not just the rich buying premium cars everyone else is buying premium cars also. I see so many beamers and benzs on the road now and Jag came out with XE to compete 3 series and hang in there with em. XF making appeals to bmw 5 series crowd and so forth ..... Either way, Its gonna be cheaper in the future for sure price wise.

 

+1. Lower value of the £ will benefit the UK export business. They could lower the price in $ and increase sale, and make the same profit pr unit, or keep the price in $ and increase the profit pr unit (in £).

There are off course other parameters that influense this (what currency they pay for the raw materials, components etc), but since the car is produced in UK, I would guess the nett ballance will be in favour of JLR.

 

Yes, and to the detriment of the British labor force that relies on a significant amount of imported goods. Given the stupidity of the US electorate in the recent primaries, I can't criticize the stupidity of the Brexit vote.

 

Well, 55% of the content of my car was German.

 

Mine is 48% German and 45% UK, but I think this is being overthought. I read that it will be two years before anything is implemented..


Larry

 

Probably not far off, but the cost of making the car is a lot more than the content of the car. And most (everything?) else is Brittish.

Another thing is that the £ has dropped a lot vs $, but not nearly as much vs € - where some 50-55% of the parts are made.

And they probably have some long time currency insurance done as well, so I don't think the cost of parts will have as much influence as Brittish labour cost will.

 

The Pound is right now only worth $1.36.

 

The change in currency rate will have an imidiate effect on cost. How much depend on some variables, such as currency rate insurance etc by the different actors involved in the complete production, procurement and sales chain.

ps: sorry for my somewhat poor english and use of "incorrect" expressions, but I hope you understand the context...

 

Arne, you are easier to understand than many of our native English-speaking members.

 

He may be - oh he is - Unhinged but he's also right Arne!

Cheers from the [still] United States of America.
Jay

P.S. Don't know anything about currency rate "insurance" but do know a lot about currency hedging (and perhaps that's what you mean?) as that was one of my specialities years ago.

 

Thanks - to both of you

I don't know what the term "hedging" means in practical terms (how it works), but what I mean with currency insurance is a couple of things. It can be that you as a Brittish procurer of German parts have made the deal for procurement for the next 1-2 years in a fixed price in £. In that way the currency risk is at the supplier, which in their turn may reduce their risk by buying £ in the aproximate amount of the expected sale.

Or the Brittish procurer might buy the German parts in € and reduce their currency risk by buying € (the aproximate amount for exc. 1 year of expected total cost of ordered parts), and then sell the € off to £ at the same rate as the value of the parts keep coming in.

There is a small aditional cost in doing so, therefore the use of the term "insurance".

Or you can take the risk of gaining or loosing when the currency value changes, but that is more or less the same as gambling in currency trading - and not all production companies are comfortable (or competent enough) to risk that.

 

In essence, you've captured the gist of hedging. The word "insurance" might apply to buying options on (currency) futures and paying what's called a "premium", which is just another word for "price". The buyer of an option has limited risk and unlimited potential whereas the seller has limited potential but unlimited risk (although the odds are much better for the seller than the buyer of options as time - and decay - works against the buyer and in favor of the seller). And, yes, the buyer of an option - especially as a hedge and not just for speculation - is buying a form of insurance.

Trading or hedging futures are an entirely different animal and companies - and individual speculators - can and do lock in prices for many months and many years in the future, hence the name futures. It's a long-standing way of managing and reducing risk. I will add, potentially.

Both options on futures and futures outright might be an effective tool of management given the continuous uncertainly of the world. Needless to say, risks abound.

Now, not only is your English better but - potentially - you have a little better understanding of hedging? Then again...maybe not. In any event, sending you my best from the Great State of Maine!

Jay

 

Gee, Jay, you almost sound like you know what you're talking about...

 

Any resemblance to a display of intellectual knowledge is merely coincidental.

 

Thanks Jay. It did give me a little better understanding of Hedging, and I appreciate your effort!

Speculation is never an exact "science", but with enough knowledge of risks and experience, the risks are being reduced and the gains might be high.

Personally I like to play it safe, and I can't complain of how that has worked out til now.

Very happy I am not in the financial business at times being

 

Always a pleasure Arne! My very last comments - since I've veered slightly off-topic - are these:

Practically any and all investments carry risk. If someone tells you otherwise RUN! Some more than others. Having said that, risk can be managed and/or mitigated. The key is diligence and the ability to put ones ego in check and know what you're getting into (thoughtfully, mindfully, and realistically and setting goals and when to say "uncle"...before it's too late and you go bust, or worse; and in futures that can happen if one doesn't know what they're doing). Last but not least, the three components to market influence are 1) fundamentals which usually consist of supply/demand, 2) technical which consists of the interpretation of charts (past price action depicted on a graph, whether 5 min ago or 5 days, 5 weeks, months, etc. and obviously "5" is just being used arbitrarily here), and the often elusive and least understood 3) psychological which may or may not have any correlation to the first two. I call fundamentals the Queen Mary of analysis as it often takes a long time to turn things around, whereas on any given day (week, month, etc.) technical and/or psychological (a.k.a sentiment) considerations rule. Those last two are occasionally viewed as part of the "dark arts" with some less believing of its influence than others. I believe!

Speaking in general and/or rough terms. For what it's worth.

 

Jay, not off topic at all. Gets into the detail of one factor that needs to be understood and considered to fully answer the OP's question.

 

You want off topic? I'll give you off topic...I certainly hope you're eating some of the amazing foods the Big Easy is famous for, including one of my top 3 dishes of all-time, crawfish etouffee!? Maybe some shrimp gumbo? Definitely some hot beignet!

No hedging necessary.

Have fun U, amidst your work.