Weak Ringgit driving car prices up? Here’s how Mercedes-Benz Malaysia is managing it

The Malaysian Ringgit has been one of the weakest currencies in Asia. In the last 10 years, the Ringgit has lost more than 20 percent against leading regional currencies like the Singapore Dollar and Thai Baht.

Against the US Dollar, the Ringgit has dropped by about 40 percent since 2012.

Regardless of whether a car is imported (CBU) or locally-assembled (CKD), the automotive supply chain is exposed to fluctuations in foreign exchange.

Most of the time, the purchase of parts, CKD kits, or even the whole car itself is done many months in advance, sometimes more than a year, with pre-agreed prices. Plus, car companies also do their own currency hedging.

Usually, such fluctuations are manageable as the ups and downs of currencies is a daily business affair. Sometimes you earn more from favourable forex, sometimes you lose. The idea is to average out the earnings / losses. After all, a car company is not a bank, so they don’t spend too much time thinking about foreign exchange.

But a 40 percent drop of the Ringgit against the US Dollar, the currency used by most companies when trading, will certainly have an impact on car prices.

As such, we were pleasantly surprised that the recently launched W206 generation 2022 Mercedes-Benz C-Class didn’t see a significant increase in price.

Also read: Launched in Malaysia: All-new (W206) 2022 Mercedes-Benz C-Class - From RM 288k, CBU

The entry C200 starts from RM 288,234, and did not breach the RM 300k barrier as initially feared. Of course, price increase have also been kept under control by the 50 percent discount on SST, part of the Malaysian government’s Covid-19 economic relief measure. Without it, prices would’ve been closer to RM 300k.

The previous W205 generation C200 was launched in 2014, also a CBU first before switching to CKD, was priced at RM 285,888, but that price was inclusive of SST.

However if you look into the finer details of the car, you will notice that some features have been omitted to keep prices in check.

There’s no USB charging ports for rear passengers, regardless of variant.

The previously available Burmester sound system package and Multibeam LED headlamps are missing even on the C300, nevermind Digital Light headlamps.

Both the C200 and C300 now make do with regular LED High Performance headlamps.

To be fair, you also gain a lot more new things - S-Class inspired fingerprint-scanning infotainment for example, plus a new ISG 48V mild-hybrid M254 engine that replaces the previous short-lived, belt-driven RSG unit in the older M264 engine.

Also read: Customized for either the Mr or Mrs, the W206 Mercedes-Benz C-Class offers a fingerprint scanner

To understand more on the impact of unfavourable forex on upcoming Mercedes-Benz cars, we spoke to Sagree Sardien, CEO of Mercedes-Benz Malaysia (MBM), on the sidelines of last Friday’s launch of the C-Class.

“Forex always is a situation that will affect us, being a global organization with raw materials coming from abroad. So yes, it has always impacted us but I think the more relevant discussion happens to be CBU vs CKD, more than the FX effect. Our business is hedged to handle these topics and we always try as much as possible to absorb as much as we can in the segment, and where it makes sense, we certainly have to take a look at what the pricing structure is.

“We are really glad that we are able to bring in the C-Class quite competitively, but we have to continue to monitor the situation and see how the economy develops, and what the FX development mean in the future,” she added.

Reading between the lines, Sagree’s comment implies that MBM has already slashed its own margins to absorb the impact of the weak Ringgit, and the margins on the C-Class is probably right at the limit of what’s acceptable. Beyond this, further cuts in vehicle features or increase in prices is inevitable.

Of course, local assembly (CKD) is another solution to manage the impact of a weak Ringgit, but since most of the vehicle’s components are still imported from Germany or USA (Alabama is the main plant for larger SUVs like the GLE, which is also produced CKD in Pekan), a CKD programme’s ability to control increase in cost is quite limited.

Mercedes-Benz Malaysia has also confirmed that CKD variants of the W206 C-Class will be launched within the second half of 2022.

However if you are shopping for a C-Class but is holding your purchase because you want to wait for a cheaper CKD variant, don’t bother, because with SST reimposed after 30-June 2022, much of the gain in price reduction will be cancelled out by a higher sales tax.

Prices of the CKD variants will of course still be lower than the CBU ones, but the difference might be inconsequential to you.

With the previous W205 C-Class, switching from CBU to CKD sourcing slashed prices by about 5 percent (about RM 15k to RM 16k cheaper), but the recent SST discount had slashed prices of CBU cars by about 3 percent.

Without going into too much details, buyers can expect a net price reduction of just 2 percent for the CKD C-Class.

Also read: Waiting for the cheaper CKD W206 Mercedes-Benz C-Class in Malaysia? Don’t bother