VW, Fiat weigh U.S. expansions because of euro

December 11, 2007|By New York Times News Service

DETROIT -- The dollar's falling value is making European automakers eager to build more vehicles in the United States, even as American car companies continue to shift production to lower-cost countries.

Fiat, the Italian carmaker, is the latest company to suggest that it may build a plant in the United States. Its chief executive, Sergio Marchionne, told Automotive News Europe that its sports car brand, Alfa Romeo, needs a North American plant to be profitable. Alfa Romeo is returning to the United States next year after a 13-year absence.

Volkswagen of Germany is scouting locations for a plant in the Eastern United States. It was the first foreign carmaker to open an American factory, in New Stanton, Pa., but closed the factory in 1988. Volkswagen's chief executive, Stefan Jacoby, said during the Los Angeles Auto Show last month that the company would decide by mid-2008 whether to build the factory.

Fiat and Volkswagen are mass-market European brands, as opposed to BMW and Mercedes-Benz, which operate luxury-car factories in the American South. Analysts said the arrival of Volkswagen and Fiat could lead others, including the French companies Renault and PSA Peugeot-Citroen, to move production to this country as well, if the euro remains strong.

"Currency becomes a critical profitability lever when you're a globalized business," said John Hoffecker, managing director of AlixPartners, a consulting and reorganization firm based in Southfield, Mich.

"The way that you keep currency out of it is by having manufacturing facilities around the world. With the U.S. being such a good market to play in, I think you'll see more and more companies put facilities here."

BMW and Mercedes, which began building vehicles in the United States in the 1990s, are expanding American production in response to the dollar's falling value against the euro. BMW also has hinted that it may someday build engines and transmissions in the United States.

The euro traded at $1.4712 yesterday in New York, slightly below the record high set last month. A slowing American economy has accelerated the dollar's fall against the euro this year.

The euro's strength makes vehicles produced in Europe significantly more expensive in the United States, forcing carmakers to either cope with smaller profit margins or raise prices. But slowing American auto sales make it difficult for auto companies to charge more, Hoffecker said.

"In the scope of the auto industry, $100 makes a difference," he said. "The change in currency has had thousands -- tens of thousands in some vehicles -- of dollars of difference" for European companies.

A recent study by the Center for Automotive Research in Ann Arbor, Mich., conducted before the dollar's latest period of decline, found that autoworkers in Western Europe were earning nearly $10 more an hour than their American counterparts.

Marchionne, of Fiat, told Automotive News Europe that the weak dollar and competitive pressure in the American car market would make Alfa Romeo a money-loser for the first three or four years after its reintroduction in the United States.

Volkswagen, which hopes to double its North American sales to at least 800,000 vehicles a year, builds small cars, including the New Beetle, in Puebla, Mexico. One option for Volkswagen would be to expand in Mexico instead of building a plant in the United States.

Volkswagen has not earned a profit in North America since 2002, losing $800 million last year.

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