Weak currencies in Europe and Japan are creating repercussions for automakers, forcing them to adjust to new fiscal realities created by a stronger dollar.
Autoworkers are restive, as are forecasters and planners. Since the auto industry requires long lead times, the forecasts for currency values represent a dangerous wild card – which can abruptly alter scenarios when they deviate too far from assumptions.
Michael Brecht, Daimler AG’s labor chief who sits on the automaker’s supervisory board, is questioning publicly whether his company should be expanding production in the U.S. instead of exporting more vehicles. Last year Daimler said it will move some production of Sprinter vans from Dusseldorf, Germany to a new plant to be located in North America. The U.S. is Sprinter’s No. 2 market after Germany.
Daimler also has announced a manufacturing venture to build engines for Mercedes-Benz and a future Infiniti luxury car in Aguascalientes, Mexico. The German automaker operates a Mercede-Benz assembly complex in Vance, Alabama.
Brecht and other German labor leaders want to keep manufacturing and employment in home. The trend has been in the opposite direction as the euro rose in value starting in 2002, reaching a peak of about $1.60 per euro since mid-2008 and making exports less competitive from Europe. But in response to economic troubles of the past year, the euro has lost more than 17% against the dollar and now is worth about $1.13.
An exceptional run up in the value of the yen versus the dollar following the global financial crisis suddenly made exports from Japan, including vehicles, less competitive. Plants began closing. But since the beginning of 2012 the yen has weakened by about 50% in value, moving from about 77 to the dollar to the current level of about 120. Japanese automakers, especially Toyota, have benefitted as their profits, which are made mostly in the U.S., have soared in value.
Toyota, the world’s No. 1 automaker in terms of profit, forecast a second straight year of record net income that could top $18 billion for the fiscal year ending in March. Consequently, the automaker’s labor union wants a raise. Tatsuro Ueda, Toyota managing officer, today rejected a demand for an average 6,000 yen ($50) a month wage increase.
Japan’s Prime Minister Abe is pushing Japanese automakers to grant wage increases after pursuing economic and monetary policies that gave advantages to exporters. The country’s government and central bank have been struggling with a weak economy that’s been in recession four times since 2008.
Automotive exports from the U.S., which had grown in the face of strong currencies in Europe and Japan, are now less competitive and probably will fall in volume.
An optimistic footnote to the trends and counter-trends of international currencies was sounded this week by Ratan Tata, the retired chief executive officer of the Indian automaker that owns Jaguar and Land Rover.
Speaking at an automotive round table in South Carolina, Tata said his company is still considering North America for a new assembly plant for the manufacture of JLR models. He hasn’t said where or when an announcement will be made—but rumors are circulating that Georgia is a possible site.
For the moment, automakers continue to gain in size and in global breadth, with more locations far from home markets. Along with forward delivery contracts and other financial hedges against unstable currency values, overseas plants defend against uncertainty.