A KEANE EYE: Sticker shock

But come the new year, and sticker shock is something that people will have to face up to.Taking the currencies of the major countries that supply construction equipment to the Australian market, and comparing the most favourable exchange rate for Australia during 2008 to the exchange rate on December 18, goods at the same cost in their country of manufacture would now be more expensive in Australia by the following factors:Japan: +68.59%China: +39.78%US: +38.93%Europe: +28.5%Korea: +10.47%UK: +8.25%That’s an extreme comparison so make things a little fairer.Let’s compare the average exchange rate for the first six months of 2008 with that on December 18 (and bear in mind that the Australian dollar has improved in the last couple of days):Japan: +57.13%China: +35.63%US: +31.32%Europe: +23.87%UK: +3.38%Korea: -0.12%Put some brands against those countries and you’ll get an idea of what could happen to equipment prices when new stock that reflects current exchange rates hits our shores. You’d have to think that, given the Japanese dominance of the excavator market, excavator prices could take a bit of a hike.There should be alarm bells ringing for suppliers of Chinese equipment because their previous price advantage will be under pressure, particularly when compared to Korean brands, and the market will not be so forgiving of quality control and finish issues. The currently limited range of products imported from Korea is perhaps the biggest saving grace for those distributing products from countries that have fared worse in the exchange battle. When it is considered that a number of components for Korean machines come from Japan, then the news perhaps isn’t quite as good as it initially appears.The British currency hasn’t changed greatly against the Australian dollar, which should be good news for JCB lovers.A factor that can’t be quantified readily, apart from the effect of components sourced from outside the country of manufacture, is the multiple factories that many larger manufacturers operate for the same type of equipment, and the possibility of switching supply to a lower cost factory. This is already a fact of life at the bottom end of the car market in Australia.One thing is fairly certain, that there won’t be any charity from the manufacturers and their distributors. They are hurting enough with the global economic situation, and don’t have a treasure chest to call on to grease the path to a sale. Real cost increases will be passed on.If the real impact of exchange rate changes on equipment prices has largely been ignored, then there is another factor that should also be considered. The exchange rate changes have made people in some other countries instantly more wealthy that their Australian counterparts. They will have the opportunity to pick up Australian companies and some Australian technology for what to them is a bargain price but seems like a windfall to a local. Somewhere down the line, before we give away the store, we have to draw a line in the sand and decide that we will ignore short-term gains and look at the longer term, exploiting our technology and expertise through licensing agreements and joint ventures rather than through outright sale. There are some things that Australia does well, otherwise there wouldn’t be so many ex pats working overseas.If we don’t start thinking about our long term future no one else will, and we will have run out of things to give away.

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