Falling dollar what problem? It looks like more energy demand from US manufacturing.
European Auto Makers Rev Up
Output Where Dollar Is King
By NEAL E. BOUDETTE and JOSEPH B. WHITE
Staff Reporters of THE WALL STREET JOURNAL
DETROIT -- The dollar's weakness is prompting some European car makers to expand their manufacturing capacity in dollar-denominated markets, creating a natural hedge against the currency's fluctuations.
Since hitting a recent peak against the euro in mid-2002, the dollar has lost about 50% of its value. This has hurt car makers when their revenues and profits are translated back into their native currencies. At Volkswagen AG, for instance, the declining dollar reduced 2003 sales by "far more than €1 billion," or $1.27 billion, said Chief Executive Bernd Pischetsrieder. VW limited the pain last year by hedging about 40% of its exposure to the dollar. Still, Europe's biggest car maker is expected to post an operating loss in North America for 2003.
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Japanese car makers also have been hurt by the weak dollar, but far less than the European companies. That is because Europeans currently build a much smaller number of their vehicles in the dollar area. Toyota Motor Corp., for instance, made 1.66 million vehicles in its five North American plants last year, and it plans to add a plant in Texas in 2006. By contrast, DaimlerChrysler AG's Mercedes division manufactured about 90,000 M-Class sport-utility vehicles in Alabama last year, and Bayerische Motoren Werke AG assembled about 150,000 X5 SUVs and Z4 roadsters in Spartanburg, S.C.
Europeans now plan to step up their presence in the U.S. and in Mexico and Brazil, where the dollar frequently serves as the principal business currency. At the North American International Auto show here, DaimlerChrysler unveiled a Mercedes-Benz family car that will be built at its Tuscaloosa, Ala., plant. One version of the car, a roomy wagon called the Grand Sports Tourer, will be made in the U.S. and exported back to Europe. The company is spending $600 million to expand the plant's capacity to 150,000 vehicles a year. The Mercedes division also is preparing to build a four-door Smart subcompact in Brazil for export to the U.S. and Europe.
VW is moving production of its Jetta and Bora models to Mexico from Germany and Slovakia and plans to add a Fox compact that will be built in Brazil for export. Versions of the new Golf sold in North America, due in 2005, will be built in Mexico as well.
"Medium and long term, the only way [to deal with currency fluctuations] is to create value in the respective currencies," said VW Chief Financial Officer Hans Dieter Poetsch.
The shift of Jetta and Bora production will increase VW's natural hedge to 60% of its North American revenue from 50% now, Mr. Poetsch said. The company also is looking to increase the share of North American-made components used in the new Jetta and Passat models, due out in 2005.
Analysts questioned if VW was doing enough. VW's moves add "a level of North American cost to the books," but the total number of vehicles built in dollar-markets will be "only about 200,000," said Adam Collins at Commerzbank in London. "That's only about 5% of the group total."
Also, Volkswagen is increasing its exposure to the dollar as it plans to boost shipments to the U.S. of European-made Touareg SUVs, VW Phaeton luxury cars and various Audi models.
Saab, the Swedish unit of General Motors Corp., plans to add an SUV to be built in a GM plant in the U.S. That the Saab 9-7 is based on the Chevrolet TrailBlazer and will sell mostly in the U.S. were the main reasons for having it built in America, the company said. Still, Michael J. Burns, president of GM Europe, said that having some U.S. production "helps diversify the currency base" for Saab.
Ford Motor Co.'s Volvo unit said it, too, is open to the idea of using its parent company's U.S. plants to buffer currency fluctuations, but has no plans to do so yet.
Write to Neal E. Boudette at neal.boudette@wsj.com and Joseph B. White at joseph.white@wsj.com |
