European automakers are considering further expansion in United States through building plants, which will eventually allow them to create more vehicles for the giant market. The interest is being boosted by the dollar’s falling value, despite the fact that American car companies are shifting production to other lower-cost countries.
Fiat, an Italian automobile manufacturer, is the most recent company that is reportedly planning to build a plant in the United States. According to Fiat’s Chief Executive Sergio Marchionne, Alfa Romeo, Fiat’s sports car brand, needs a North American plant to be profitable. After 13 years of absence, Alfa Romeo is expected to return to United States by next year.
Volkswagen, a German-based automobile manufacturer, on the other hand, is currently searching for a location for a plant in the eastern United States. It was the first foreign automaker that opened an American factory – in New Stanton Pa., - but had closed the facility in 1988. Last month, Volkswagen’s Chief Executive Stefan Jacoby said that the company is looking forward to build the factory by mid 2008.
Unlike BMW and Mercedes Benz, which operate luxury car factories in South America, Fiat and Volkswagen are considered mass-market European brands. According to analysts, the arrival of Volkswagen and Fiat could lead others, such as the French companies Renault and PSA Peugeot-Citroen, to expand production to the country as well. But, that is if the euro remains strong.
John Hoffecher, managing director of AlisPartners (a consulting and reorganization firm based in Southfield, Michigan), said, “Currency becomes a critical profitability lever when you’re a globalized business … 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 both started building vehicles in the United States in the 1990s. Now, they are expanding American production due to the falling value of dollar against the euro. BMW has also been predicted to build engines and transmissions someday in the United States.
The strength of euro makes the Europe-produced vehicles more expensive in the United States. In that case, automakers are triggered to either cope with smaller profit margins or perhaps raise prices. Hoffecker said, however, slowing American auto sales make it difficult for the companies to charge more. He said, “In the scope of the auto industry. $100 makes a difference … The change in currency has has thousands – ten of thousands in some vehicles – of dollars of difference (for European companies).”
Before the dollar’s latest period of decline, the Center for Automotive Research in Ann Arbor, Michigan, conducted a study that revealed autoworkers in Western Europe earning about $10 an hour more than their American counterparts.
Marchionne said that the weak dollar as well as the 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. He said, “It was already expensive when the dollar was $1.10 to the euro. Now it is more expensive … Mid to long term, I have no doubt” that Fiat will have the need to build vehicles in North America to sell at a profit in the United States.
Volkswagen is hoping to double its North American sales to at least 800,000 vehicles annually. Since it has been building small cars in Puebla, Mexico, a better option for the automaker would be to expand in Mexico rather than putting up a plant in the United States.
Since 2002, Volkswagen was not able to earn a profit in North America. In fact, it lost $800 million dollars last year.
The automakers should first account those facts before getting into a risky decision, just as how we should carefully pick the right Acura Integra mirror online.
Fiat, an Italian automobile manufacturer, is the most recent company that is reportedly planning to build a plant in the United States. According to Fiat’s Chief Executive Sergio Marchionne, Alfa Romeo, Fiat’s sports car brand, needs a North American plant to be profitable. After 13 years of absence, Alfa Romeo is expected to return to United States by next year.
Volkswagen, a German-based automobile manufacturer, on the other hand, is currently searching for a location for a plant in the eastern United States. It was the first foreign automaker that opened an American factory – in New Stanton Pa., - but had closed the facility in 1988. Last month, Volkswagen’s Chief Executive Stefan Jacoby said that the company is looking forward to build the factory by mid 2008.
Unlike BMW and Mercedes Benz, which operate luxury car factories in South America, Fiat and Volkswagen are considered mass-market European brands. According to analysts, the arrival of Volkswagen and Fiat could lead others, such as the French companies Renault and PSA Peugeot-Citroen, to expand production to the country as well. But, that is if the euro remains strong.
John Hoffecher, managing director of AlisPartners (a consulting and reorganization firm based in Southfield, Michigan), said, “Currency becomes a critical profitability lever when you’re a globalized business … 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 both started building vehicles in the United States in the 1990s. Now, they are expanding American production due to the falling value of dollar against the euro. BMW has also been predicted to build engines and transmissions someday in the United States.
The strength of euro makes the Europe-produced vehicles more expensive in the United States. In that case, automakers are triggered to either cope with smaller profit margins or perhaps raise prices. Hoffecker said, however, slowing American auto sales make it difficult for the companies to charge more. He said, “In the scope of the auto industry. $100 makes a difference … The change in currency has has thousands – ten of thousands in some vehicles – of dollars of difference (for European companies).”
Before the dollar’s latest period of decline, the Center for Automotive Research in Ann Arbor, Michigan, conducted a study that revealed autoworkers in Western Europe earning about $10 an hour more than their American counterparts.
Marchionne said that the weak dollar as well as the 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. He said, “It was already expensive when the dollar was $1.10 to the euro. Now it is more expensive … Mid to long term, I have no doubt” that Fiat will have the need to build vehicles in North America to sell at a profit in the United States.
Volkswagen is hoping to double its North American sales to at least 800,000 vehicles annually. Since it has been building small cars in Puebla, Mexico, a better option for the automaker would be to expand in Mexico rather than putting up a plant in the United States.
Since 2002, Volkswagen was not able to earn a profit in North America. In fact, it lost $800 million dollars last year.
The automakers should first account those facts before getting into a risky decision, just as how we should carefully pick the right Acura Integra mirror online.
