Automakers Cheer as Dollar Plummets

Detroit automakers (search), facing weaker sales and falling market share, have cheered the 13 percent fall in the U.S. dollar against the euro this year, which has put pressure on prices of imports from rivals.

The dollar's more modest 2 percent drop against the Japanese yen has helped counter the cost advantage of up to $3,500 per imported vehicle that Japanese automakers have against their U.S. competitors, said General Motors Corp. (GM) chief economist Mustafa Mohatarem.

"Our competitive position has improved quite substantially," Mustafa told Reuters. "Because of the very strong dollar over the past two or three years, the U.S. manufacturing sector has been in a recession. Because of the weaker dollar, the manufacturing sector will become more viable in the U.S."

The weaker U.S. dollar causes the price of vehicles imported into the United States to rise and forces foreign automakers to cut their prices or boost incentives to compete or risk lower sales.

Ford Motor Co. (F), whose "Premier Automotive Group" divisions Land Rover, Jaguar and Aston Martin are based in Britain, has been encouraged by the British pound's 11 percent fall against the euro so far this year.

"With so much of our Premier costs in (British pounds), that has been an uphill battle for us, and I'm delighted to see in the last several weeks that has turned around," Chief Operating Officer Nick Scheele told analysts last week.

Japanese automakers have bemoaned the weak dollar, arguing that it will hurt their hefty profits from the U.S. market.

Yoshihide Munekuni, chairman of both Honda Motor Co. (search) and the Japan Automobile Manufacturers Association (search), said earlier this month that he would prefer to see a weaker yen.

Nissan Motor Co Ltd. (search) said last week that its profit growth would slow to 11 percent this year from 51 percent last year because of the dollar's fall. Honda and Toyota Motor Corp. (search) also warned that their profits would suffer this year.

Just a year ago, when Detroit's Big Three automakers appealed to the White House to stop Tokyo from artificially weakening the yen, Japanese automakers downplayed the currency benefits.

On the other hand, the euro's strength against the yen gives Japanese automakers a cost advantage in Europe, where they are increasing their market share.

Economist Van Jolissaint of the Chrysler arm of DaimlerChrysler AG (DCX ) said foreign automakers have reduced the impact from currency swings over the past few years by building more plants in the United States and buying parts from domestic suppliers.

Just this week, Nissan began operations at its new $1.4 billion plant in Mississippi. Toyota said earlier this year it would build a vehicle assembly plant in Texas, its sixth in North America, and South Korea's Hyundai Motor Co. Ltd. (search) plans to open a new car plant in Alabama in 2005.

"The benefit won't be as big, but we'll go from having the wind in our face to having the wind at our backs," Jolissaint said. "The effects on Chrysler are unambiguously beneficial."