Weak U.S. dollar hits auto profits
Big Three's European divisions feel pinch of rising euro; U.S. plants shelter Japanese
By POORNIMA GUPTA
Reuters News Agency
Monday, January 17, 2005 - Page B6
DETROIT -- The record rise of the euro against the U.S. dollar hangs over the big U.S. auto makers, whose returns from European operations in particular have shrunk as a result of the weaker greenback.
Both General Motors Corp. and Ford Motor Co., the top two U.S. producers, are predicting another tough year for sales growth in the sluggish European Union economy. The euro's steady gains inflated the losses at GM and Ford's European operations last year.
"It's a multipronged issue. On the one hand, it makes life more difficult for the European-based entities," Ford chief executive officer Bill Ford said last week at the Detroit auto show. "On the other hand, it should make life more palatable for the U.S.-based manufacturing group."
The dollar slid 8 per cent against the euro in 2004. The single European currency has gained 59 per cent from its low of 82.25 cents (U.S.) in late 2000 to its current level of about $1.31.
Ford derives about 24 per cent of its global revenue from Europe, and the weak dollar magnified the problems of its key luxury brands -- Volvo, Jaguar, Land Rover and Aston Martin.
Those brands, which are mostly made in Europe, lost $513-million before taxes during the first nine months of 2004.
GM's Swedish luxury-vehicle brand Saab was hurt by the strength of the Swedish krona, which rose in tandem with the euro, GM chief executive officer Rick Wagoner said last week.
GM, which sells about 21 per cent of its vehicles in Europe, said the outlook for European sales in 2005 looks "shaky."
Despite sweeping cost cuts, GM Europe is unsure when it will return to profitability, given the jittery market.
DaimlerChrysler AG's Chrysler Group, whose U.S. sales rose 3.4 per cent last year, saw those dollar revenues shrink as they were translated into the stronger euro for the German-based company.
The weak dollar also hurt the group's premium Mercedes division, which typically generates most of DaimlerChrysler's earnings and derives a fifth of its sales from the U.S. market.
Japanese auto makers, who generate about 70 per cent of their operating profits in North America, suffered from the 4-per-cent softening of the dollar against the yen last year.
The yen's rise shrank dollar-zone profits of the big three Japanese auto makers -- Toyota Motor Corp., Honda Motor Co. Ltd. and Nissan Motor Co. Ltd. -- last year.
However, the impact was muted by the fact that the trio produces locally most of the vehicles they sell in the United States.
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