Devaluation pressure - Prices to increase if slide continues

Support for pegged exchange rate

Chad Bryan, Gleaner Writer

It is likely that if the Jamaican dollar continues to devalue against the major foreign currencies, it will affect automotive sector. The price increases could affect new and used automobiles, spare parts and lubricants.

According to the Bank of Jamaica (BoJ), as
of Wednesday, the United States dollar sold for an average of
J$90.65.

President of the Jamaica Used Car Dealers
Association (JUCDA), Lynvalle Hamilton, explained that, "Whenever there
is a move in the dollar, it most certainly will affect the prices of
automobiles and spare-part prices. Devaluation would also affect used
cars. We purchase these things in US dollars, so it is only
natural."

Ian Lyn, vice-president and managing
director of Kia/Carmax Jamaica Limited, explained, "It's not affecting
us in any big way, but if it continues along this trend, it will. If
another two to three dollars or so are added, it will affect us. We're
feeling a pinch though."

"The price of automobiles
would be affected quicker than the spare parts. We purchase cars every
month and parts every other month. Used cars cost, at minimum, US$6,000
and for new car, US$12,000 minimum," said Lyn.

Lyn
said that a US$6,000 purchase price abroad would translate to a sale
price of about $840,000 in Jamaica and, with the inclusion of other
miscellaneous costs, the figure would stand at $900,000. However, with
the devaluing Jamaican dollar, a used-car dealer would face a profit
loss of approximately $60,000. This, he said, would be the result of the
exchange rate moving from US$1 to J$84 to US$1 to
J$90.

DEPENDENCE ON FOREIGN
D0LLAR

Kent LaCroix of Stewart's Auto Sales and
chairman of the Automobile Dealers' Association, stated, "You have to
buy in foreign exchange and the prices will go up. Parts and cars are
brought in in an ad hoc way. There's a dependence on the value of US,
Japanese and Jamaican currency. If the yen devalues, there is a better
situation, and it depends on when the vehicles come in
also."

Sales manager at Tropical Battery, Ronald
Donaldson, said, "The prices of lubricants such as engine oil,
transmission fluid and brake fluid would go up. We have been trying to
absorb as much as we can. If the conversion rate is higher, then we're
faced with a dilemma. It's not just a price hike for price hike sake.
Prices will go up, but we try as best to offset our own
spending."

Recently, former Prime Minister Edward
Seaga called for the Portia Simpson Miller administration to "put aside
timidity" and embrace the policy of a pegged exchange
rate.

Lyn and LaCroix agreed that pegging the Jamaican
dollar would help the automotive industry. According to Lyn, "Pegging
the dollar would absolutely help. It should have been pegged already. It
would help our business. It would also help with planned projections
even up to three months or more."

LaCroix said, "If it
is pegged, it most certainly will help. I don't see any reason that it
wouldn't. You would have a constant Jamaican dollar to work with. If
this happens, you could work around the yen, US dollar, and even the
Euro".

However, at least one financial analyst,
Ralston Hyman, has rejected the suggestion made by the former prime
minister. Hyman noted that taking this approach could cause more
problems, as the market is taken out of the process and the rates are
arbitrarily set by various groups.