US dollar changing automotive world
March 10, 2008 by Alborz Fallah
The struggling US dollar might be great news for tourists visiting the US, but it has left many car manufacturers in a state of panic as they work overtime to come up with a whole set of new strategies to successfully compete in the massive market.
The impact has hit hardest for European and Japanese automakers that export vehicles to the United States. BMW, Mercedes Benz and Volkswagen have all had to rethink their strategies.
A few have already raised prices — sacrificing numbers — some have began building assembly plants in North America to take advantage of the situations, while others have simply scrapped plans to export certain models.
According to UBS analyst Max Warburton the strong Euro is costing Daimler (Mercedes-Benz), BMW, Volkswagen and Porsche a combined $1.5 billion a year.
So far it has been estimated that every 1-cent rise in the value of the euro costs BMW and Mercedes roughly $75 million (USD) each per year.
Some of the major effects so far have been the cancellation of the Holden Sportwagon export program (as the Pontiac G8 sport wagon). Instead GM will export the Cadillac CTS sedan to Europe.
Volvo is considering building the C30 at a Ford plant in North America. Mercedes-Benz has cancelled plans to export its next-generation B-class small car to the United States unless the dollar strengthens.
But the biggest news is an announcement from Volkswagen confirming previous rumours that the company will begin building an assembly plant in the southeastern United States with a production capacity of 200,000 units. This will go a long way for VW to meet its 1 million sales target by 2018.
The strong Aussie dollar has also cut into the profitability of Holden’s export program.
Print it: 
Can that US note be photo copied? :) LOL
So with things being so much harder for those importing cars into the US, will we see a reversal of fortunes for the domestic automakers?
Not likely, they’ll continue going downhill, but they’ll have to find something else to blame instead of the undervalued Japanese Yen which has been the scapegoat until recently.
(It was always odd that they used this as an excuse when three quarters of the Japanese-branded cars sold in the US are actually made there).
well ill be damned!!!!!!!!!
where did all those people go that rubbished my thoughts on ford Australias direction to vary their line up here to keep productive rather than chasing exports??
anyone care to say ford is too silly and dumb to export now? this was blatently obvious to me 6mths ago.
now ive got the “I told you so ” out of the way,
its going to be interesting to see how those that have become reliant on exports try to manage their future stratogies.
one of my big things i kept saying was “i hope holden doesnt become too reliant on exports”.
what i feel should happen is that the US divisions of both ford and GM should take the respective falcon and commodore recipes and build them with in the states.
still keep producing them here though aswell.
that way they can overcome the ability of sharing development costs through out the company with out having to balance on the price of eggs in china so to speak.
And me Andrew M I think at the time we read the same article on it…..
I agree Andrew.. I mean Like us americans have a thing for RWD cars and its obvious that in both GM and Ford the best RWD cars are made here so it makes sense for them to copy us.. Afterall both Aussie operations have become RWD R7D centres for their Parent companies
I too believe that they should make em here and in Canada to help share development costs etc.
Wasn’t the unfavorable exchange rate the main factor that extinguished Ford Capri exports from OZ to the US in the early nineties(as well as leaky convertible tops.)
Andrew M – the majority of holdens exports are to the middle east….
One problem with the article, it implies the weakening US dollar is the reason GM is looking at exporting the CTS to europe, actually the CTS was designed with the intention of people exported to europe all along, GM has been working long and hard for around 5 years to try and establish cadillac in europe and the CTS was always destined to be the centre peice of this plan. It has nothing to do with the price of the US dollar.
Also, the US dollar is still stronger then the aussie dollar, even if by a smaller margin, so it is still more profitable to sell cars there then here, even if only just. Anyway the main idea behind holdens exports is increaded production, they can’t use up all of their production potential building cars in australia, so they are using exports to fill the production gap. Exporting large cars to the US even with a weaker US dollar is still more profitable then producing small Ford Focus sized cars because of a little thing called profit margins! A ford focus costs roughly the same price to build as a commodore, yet ford have to sell the focus at a starting point of sub 25k AFTER tax, before tax more like 20k, whereas holden can sell commodores in the US for around 30k BEFORE tax, so thats still 10k more no matter what way you look at it!
Yep I know Richo but the US dollar is seen as the currency most countries use to purchase at……
Most products manufactured these days are sold at a US dollar rate.
Like you will find everything in your home thats made overseas is sold from the factory in US dollars,I know as manufactures we are making money at the moment,we base our profit on the US dollar being at 55c in Australia so when we pay for product at 92c thats a nice little profit for us. Funny how no one in Aus seems to buying products any cheaper because of it though ha!
it doesnt matter if its exported to the middle east actually..
We’ve been issued with this problem and its actually very serious. To be blatantly blunt it will hurt Australian manufacturing… change “will hurt” to “hurting”.
As BM stated, everything made in Australia and exported are “sold” based on US dollars. A 2 cent increase means millions lost a year…as obvious as that is.
Bottomline, its a major concern… I know for a fact its hurting us big time.
BM – although i agree largely with what your saying, who on earth in the business world is still basing their business plans on the US dollar being at 55 cents? I’d love to know so i can make sure i dont have any shares in them!!! lol
Jamison – fact is the US dollar is a comodity and as such constantly rises and falls, this is factored into any sensible business’s export/import business planning. If a business can’t handle a 2 cent fluctuation in US currency then i would suggest the business would extreemly unstable in the first place!
also, most businesses adjust their product pricing to reflect exporting costs such as changes in currency pricing, the article stated that a 1 cent fluctuation could cost BMW and merceedes 75 million a year, but thats only if they chose not to pass on the increased costs to the consumer.
It should also be noted that thats not 75 million a year less profit they will make, thats 75 million a year less revenue, theres quite a big difference between revenue and profit. For example if you are converting 5% of your revenue into profits, a 75 million decrease in revenue only equates to a $3.75 million decrease in profits. See thats the thing which alot of people don’t take into account when they see big numbers like “75 million” and thats that when you get into the high end of the scale large numbers like 75 million aren’t actually that bigger numbers when your talking about companies with revenues running into the tens of billions of dollars
The price of a VW V10 Touareg is apparently $70,000 in the USA.
Over here it’s around $120,000.
So if the Euros have to double the price of their cars due to the dollar, the Yanks will buy fewer of them, as we do here.
I haven’t noticed that Jeeps are cheaper due to the exchange rate moving from 55c a few years ago to 95c now. The new Cherokee has climbed dramatically in price instead.
USA vehicles could [and should] be sold here in huge numbers.
1/Bonza exchange rate
2/Free trade agreement, no 10% duty to worry about.
3/Cheaper manufacture prices due to mass production volume.
But the issues -
1/LHD
2/”American” taste, mostly YUK!
For one, i would LOVE a Ford V8 F150 Supercab with PROPER bac seat not the rubbish the Japanese feed us [on LPG of course]@ say $45k.Where do i sign? :-)
Cheers
F-0
With the Ozzie dollar so high against the US dollar, why are car prices not coming down ? Or are the car makers pocketing the differences ?
Same with everything though R8…….
Richo you have the economic prowess of a tadpole. You simply don’t have the depth of knowledge to be making the comments here that you are.
Quote “Also, the US dollar is still stronger then the aussie dollar” ha ha ha ha. Being numerically higher does NOT neccessarily make it stronger. It IS weeker because it has lost RELATIVELY against other (inc AU$) currencies.
Please don’t confuse people with your simpleminded treasurers report.
Richo,
mate it goes beyond the actual dollar figure that is displayed.
just because the US dollar is still technically higher doesnt mean we are still ahead.
the economys dont equate as in terms of dollar value.
well what im trying to say is a $250 push bike in america = the same item here at $300.
if the prices of related products displayed the same dollar price tag irrelevant of currency values then your comment may have been a bit more valid.
have you ever been to NZ?
for round figures sake the aussie dollar buys $1.10 NZ dollars
it doesnt exactlly mean that it is “cheap as chups” to holiday in NZ as an item you would buy for $2 in australia is $2.20 in NZ.
now back to the US dollar……
say $1AUSD buys 80c US.
when we sell them cars we get $20,000USD. now that doesnt change regardless of what the exchange rate is doing.
so australia gets $20,000USD for their product which equates to 24,000AUD
now if the rate moves to $1AUD buys 95c then an income of $20,000USD becomes 21,000AUD which means we are getting
$3000 less for each vehicle.
with every 1c the dollar changes then that means it is $200 less money per unit we get in our dollar
also it is less profit because the cost of making the car here in OZ doesnt change.
it will still cost them say $15,000 to make each vehicle. everything above that is a profit whether they sell it for $24K AUD or $21K AUD
Even with the $US dollar weakening against the Aus$, the cars sold in America will always be cheaper than it is in Australia. Simply because their market is alot more competitive than here in Australia and the ones who’re pocketing the profit from the rising Australian dollars aren’t neccessarily the car manufacturer. It’s more like the car importer/dealers.