As the won-dollar exchange rate surpassed 1,530 won for the first time since the global financial crisis, the auto industry, which is sensitive to exchange rates, is also watching the situation closely. While there may be short-term earnings improvement, analysts said it could turn negative if the burden of expenses from the strong dollar overlaps with weaker demand.
According to the Seoul foreign exchange market on the 31st, the won-dollar rate opened at 1,519.9 won, up 4.2 won from the previous day, and touched 1,535.9 won at 12:48 p.m. It is the highest level in 17 years since Mar. 10, 2009 (1,561 won). With signs that the war between the United States-Israel and Iran will drag on spreading risk-off sentiment, the won, a non-reserve currency, is seen to have weakened.
A strong dollar is, at least for now, a boon for the auto industry. Dollars earned overseas are converted into won for the books, and the higher the dollar, the more sales and operating profit increase. In fact, according to Hyundai Motor's business report, if the won-dollar rate rises 5%, profit before income tax increases by 169.8 billion won. Hyundai Motor also saw the effects of a strong dollar in the fourth quarter of last year, with sales and operating profit increasing by 1.676 trillion won and 710 billion won, respectively.
The won-dollar rate on the day was about 8% higher than last year's average (1,422 won). Assuming this level holds as the annual average, a simple calculation shows profit before income tax would increase by about 270 billion won from exchange rates alone. Haneul, an analyst at NH Investment & Securities, said, "The average exchange rate in the first quarter is higher than the first quarter of 2025 (1,454 won), which was the highest in the past five years," adding, "Profitability in the first quarter is expected to improve thanks to a favorable exchange rate." Kia, when it announced its 2025 management results in Jan., projected this year's average exchange rate at 1,370 won.
If profitability improves on exchange-rate gains alone, price competitiveness follows. Because earnings rise without raising prices, more aggressive marketing becomes possible. An auto industry official said, "A strong dollar could partially offset tariff burdens or higher promotion costs in the U.S. market."
However, some say it is hard to view the situation as purely positive when the won-dollar rate deviates significantly from expectations and volatility increases, as it does now. Warranty provisions are a representative variable. Warranty provisions are expenses for free warranty and repair services that are accrued in dollars at the time of sale, working against corporations in a strong-dollar environment.
Even though Hyundai Motor's 2024 revenue rose 7.7% to a record high, operating profit fell by nearly 6% due to higher warranty provisions. In addition, the fact that a significant portion of raw materials, parts, and logistics costs for auto production are settled in dollars is another factor that dilutes the strong-dollar effect.
For Hyundai Motor Group, large-scale investments underway overseas, including in the United States, could also be a burden. Hyundai Motor Group said last year it would invest a total of $26 billion in the United States through 2028. When it was announced in Aug. last year, $26 billion converted to about 36.13 trillion won, but now it is 39.923 trillion won, an increase of nearly 4 trillion won.
The strong dollar can also be read as a signal of a global economic slowdown, a negative for the auto industry. With gasoline prices nearing 2,000 won per liter due to the prolonged war, domestic auto demand is also declining, making the situation even tougher. An auto industry official said, "Automobiles are a representative cyclical consumer good, and when economic uncertainty increases, the likelihood of weaker demand rises."