With the Euro Dropping....

[Yawn]

In the last month the Euro has dropped significantly from 1.6 to 1.44 Euro per Dollar!


Do you think it will continue to drop.. stabilize.. or go back up?

If it continues to drop, do you think this will change all the European plans to bring certain autos here..What do you think the exchange will need to be for them to be profitable?

I think it should drop more since the economy of Europe is not as great...Many manufacturers such as VW, FIAT, etc. were planning on manufacturing its autos here because of the strong Euro but if the drop continues do you think plans may change?

I think they should continue the plans to open manufacturing plants in the states to produce the high volume autos.

Then send over those low volume autos (Scirocco) that were once too expensive to ship over but now it may be cheaper..

I have never seen a thread like this before so wonder what you Finance people think?

[Galaxy]

I think it should drop more since the economy of Europe is not as great...

The Euro zone has been a column of stability for world economies these past month. A source of great profit for many US firms.  Alas it seems it to will take a hit in the 4Q.


The weakness of the U$ these past years had a lot to do with low US interest rates and an increase in M3 money supply. Basically the Fed is printing money 24/7.

It is to early to tell if that will reverse in the near future.

[GoCougs]

Yes, I think that the Euro will continue to drop.

However, European automakers likely won't make any such big decisions as a result, and likely didn't when the Euro was gaining - they're smart enough to know that such things happen relatively fast - it takes years to build factories and transfer entire production lines and in that time all sorts of wacky things can happen.

My hunch is that they want to build here for other reasons; tax breaks probably being some of the biggest.

[Galaxy]

Don't expect euro car makers to make any near term changes. The auto industry usually reacts slow. Take the V6 TDI Touareg for example. VW could not make up it's mind, Finally it was decided to bring it to the US in 2007, no make that 2008, no make that early 2009, no make that summer 2009. 

[dazzleman]

Despite the recent decline in the value of the euro relative to the dollar, the dollar is still near historically weak levels compared to the euro, and some other currencies.

Markets fluctuate all the time, and decisions on where to manufacture and sell products can take years to implement.  I don't see current fluctuations having any impact on manufacturing plans.

[Galaxy]

My hunch is that they want to build here for other reasons; tax breaks probably being some of the biggest.

Monetary fluctuations are probably the biggest reasons. Corporate taxes in the US are very high on average. Plus many eastern european governments are willing to fund entire factories and shell out money so VW is not dependent on Tennessee to do that.

[MX793]

Don't expect euro car makers to make any near term changes. The auto industry usually reacts slow. Take the V6 TDI Touareg for example. VW could not make up it's mind, Finally it was decided to bring it to the US in 2007, no make that 2008, no make that early 2009, no make that summer 2009. 

Some of that delay may have been related to the difficulties in getting that engine certified for US emissions.

[GoCougs]

Monetary fluctuations are probably the biggest reasons. Corporate taxes in the US are very high on average. Plus many eastern european governments are willing to fund entire factories and shell out money so VW is not dependent on Tennessee to do that.

I highly doubt that fluctuations in currency are the primary reasons. It's simply unpredictable. No seasoned, large company finance team is gong to take a gamble on something so inherently unstable.

Many eastern European countries may shell out, but what good does that do if Russia invades, there's a revolution or civil war, or there is a succession of city-states, or other such going-ons in those countries? Those areas are inherently unstable on just about every level making them extremely unsavory from a long term perspective, whereas America is the exact opposite.

The dirty little "secret" about US corporate taxes is that ultimately the tax paid is very close zero (this is what the left calls "corporate welfare" here) owing to the myriad tax deductions and incentives.

[Galaxy]

I highly doubt that fluctuations in currency are the primary reasons. It's simply unpredictable. Preciously! Building a factory in the US takes the uncertainty out of that equation and allows companies to calculate future costs with a greater degree of accuracy. It is the same with fuel hedges, most of the time they end up being more expensive (not these last two years though) but they make future costs predictable.   No seasoned, large company finance team is gong to take a gamble on something so inherently unstable.

Many eastern European countries may shell out, but what good does that do if Russia invades, there's a revolution or civil war, or there is a succession of city-states, or other such going-ons in those countries? Those areas are inherently unstable on just about every level making them extremely unsavory from a long term perspective, whereas America is the exact opposite. With eastern european I did not mean countries like Georgia and Belarus but Slovakia, Poland, Hungary and co. Those countries are as stable as the US or Germany. Btw some companies did consider building in Russia itself (I belive BMW has a factory there already). I expect those investments to be reconsidered.

The dirty little "secret" about US corporate taxes is that ultimately the tax paid is very close zero (this is what the left calls "corporate welfare" here) owing to the myriad tax deductions and incentives. This is a game played all over the world.

[Galaxy]

Some of that delay may have been related to the difficulties in getting that engine certified for US emissions.

That was certainly a part of the problem. However the management changes and conflicts at VWoA and in Wolfsburg are slowing everything down. Another example is the Audi Q7 hybrid. It was almost complete and then they cancelled it last month because a Q5 hybrid was deemed a better choice. Perhaps it will be uncancelled in the future.

[GoCougs]

Preciously! Building a factory in the US takes the uncertainty out of that equation and allows companies to calculate future costs with a greater degree of accuracy. It is the same with fuel hedges, most of the time they end up being more expensive (not these last two years though) but they make future costs predictable.

Good point, but you're forgetting a few crucial aspects. First, what of the lost opportunity cost of a diving Euro to imported goods? Second, many parts for domestic-made (er, assembled) foreign makes still come from overseas.

With eastern european I did not mean countries like Georgia and Belarus but Slovakia, Poland, Hungary and co. Those countries are as stable as the US or Germany. Btw some companies did consider building in Russia itself (I belive BMW has a factory there already). I expect those investments to be reconsidered.

I remember when those countries were explicitly under communist rule, and I'm not that old, so I don't think they're all that stable, and certainly far less so than western Europe or the US.

This is a game played all over the world.

But then you'd have to admit that it's not a barrier then (that is, high corporate tax rate). Further states have a good dose of control over taxes (state income tax, property tax, business operational taxes, employment taxes, etc.).

And let us not forget that foreign automakers are virtually exclusively choosing the SE US to build plants to escape the unionism prevalent elsewhere in the country (not to mention Europe and Japan).

[Raza]

That's actually dollar per Euro.  Euro per dollar would be .685.

[the Teuton]

So when are we getting the Panda 100 hp?

[Galaxy]

Good point, but you're forgetting a few crucial aspects. First, what of the lost opportunity cost of a diving Euro to imported goods? Second, many parts for domestic-made (er, assembled) foreign makes still come from overseas.

True the cost of components can be expensive. I am not sure how much VW wants to make locally. I think the US plants of BMW and Mercedes import a lot.

Basically it comes down to this. Should the euro go up then VW management can go to investors and tell them of the money they saved. If the Euro tanks then at least they can tell investors that the adventure is going as planned.

I remember when those countries were explicitly under communist rule, and I'm not that old, so I don't think they're all that stable, and certainly far less so than western Europe or the US.

You probably also remember an east Berlin that still had buildings riddled with bullets from WWII, within 10 years (and billions in cost) most  of the city has been rebuilt. A lot has happened since then. Those countries are totally transformed and they have the european jurisdiction to keep on eye on them. That is not to say that they have no problems.

But then you'd have to admit that it's not a barrier then (that is, high corporate tax rate). Further states have a good dose of control over taxes (state income tax, property tax, business operational taxes, employment taxes, etc.).

It is not a barrier if the taxes can be detoured but I remember reading that many companies where complaining about the US corporate tax system.

And let us not forget that foreign automakers are virtually exclusively choosing the SE US to build plants to escape the unionism prevalent elsewhere in the country (not to mention Europe and Japan).

There where also  many factories built in eastern europe. Nut to mention places like India.

[AltinD]

Go USA is better then the rest of the World ...