Ailing greenback drives automakers to U.S.

Daimler AG is the latest automaker to announce a shift in production to the United States, building on a growing trend among foreign manufacturers responding to the dramatic realignment of global currencies that is making the U.S. market a much cheaper place to manufacture.

“We have noted that the combination of the chronically weak dollar, strong productivity gains, and the threat of protectionism will likely encourage foreign companies to boost their productive capacity in the United States,” said Marc Chandler, foreign exchange analyst at Brown Brothers Harriman in New York.

Germany’s Daimler said Wednesday it will move roughly one-fifth of the production of its best-selling Mercedes-Benz Class C model to its lone U.S. facility in Alabama from Germany by 2014.

The news comes on the heels of similar announcements made recently by Honda Motor Co. Ltd. and Toyota Motor Corp. to boost their U.S. capacity, and Volkswagen AG, which said this summer it will build a new plant in Tennessee.

“The softness in the U.S. dollar is working wonders for the manufacturing sector in the U.S. and that’s a trend that probably has legs,” said Eric Lascelles, chief economist and rates strategist at TD Securities.

“I don’t see a huge flux in manufacturing plants but at the minimum, the structural decline in U.S. manufacturing could be halted by the softness in the U.S. dollar.”

Daimler said producing more vehicles in the United States will help hedge against currency swings between the euro and the dollar and provide savings of about 2,000 euros per C-Class compared with cars imported from Germany.

If passed on to consumers, that kind of savings could be a huge catalyst to building market share in the highly competitive entry level luxury car category in the U.S.

Daimler CEO Dieter Zetsche said Wednesday he believes the Mercedes-Benz brand may be able to overtake BMW for second place in luxury-auto sales in the U.S. and also in China, where additional capacity will also be added.

Glen Hodgson, senior vice-president and chief economist at the Conference Board of Canada, said he is surprised Daimler didn’t act sooner in relocating some of its production to the United States.

“Imagine being in a country with an appreciating currency that is making your product more expensive [overseas],” he said. “Of course it makes sense to move production to the U.S.”

He thinks more international manufacturers across various goods-producing sectors will move production closer to local markets in order to naturally hedge currency risk, especially as world currencies continue to rise against a U.S. dollar hard hit by the economic recession this year.

Over the past three months alone, the euro is up 5% on the greenback, while the Japanese yen has increased more than 6%.

The loonie is also up 5% over that period and Mr. Hodgson said the increasing variability of world exchange rates leaves many sectors in Canada vulnerable, in particular the aerospace and high-technology industries that have large markets overseas.

“There is a structural shift in currencies and it is pretty obvious that the U.S. dollar will be down for some time to come,” Mr. Hodgson said.

http://www.cbc.ca/fp/story/2009/12/02/2295415.html