A widening exchange rate between the U.S. dollar and the European Union's euro may be starting to affect businesses on both sides of the Atlantic, with expectations that the dollar will continue to weaken.
U.S. auto supplier Lear Corp. estimates that currency exchange rates will boost its core operational earnings by $320 million this year - compared with a $275 million increase from new business - while France's Faurecia SA expects it will trim 1 percent from its sales for just the first half of 2004.
Machinery providers in Germany are seeing fewer opportunities to bid on new business, while firms with holdings on both sides of the Atlantic Ocean are considering boosting production in North America because of the fluctuations.
The euro has been gaining strength against the U.S. dollar since spring of 2002, but during the past six months the dollar has been dropping steadily.
In October, 1 euro cost about $1.15. By February, the value had climbed to about $1.25. Economists expect it could hit $1.34 by the end of this year.
The weakness has caused concern among international business leaders. The world's wealthiest nations, through the G-7 Finance Ministers' Feb. 7 meeting, addressed their concerns about the impact for long-term fiscal health.
``Excess volatility and disorderly movements in exchange rates are undesirable for economic growth,'' G-7 said in an official statement from the conference.
But the currency gap may mean increased work for U.S.-based manufacturers, making it unlikely that federal officials will take action before the presi- dential election in November, noted analysts with financial group Wachovia Corp. of Charlotte, N.C.
``[Bush] administration officials have not actively talked the dollar down, but they are not taking steps to prop it up, either,'' Wachovia's economists noted in a January report on currency fluctuations. ``Indeed, the administration probably welcomes it because dollar depreciation helps to stimulate the economy, and President Bush needs to generate - or at least take credit for - as many jobs as he can between now and November.''
Specific benefits are hard to lay directly on currency rates so far, but there are some early signs.
The world's largest auto supplier, Delphi Corp. of Troy, Mich., has gained business from Europe, although it is difficult to say specifically that the exchange rate is the major driver, said David Nelson, vice president of global supply management.
``That hasn't changed our overall strategy, but obviously over the long term, when suppliers see what the euro is doing, they're going to be looking for some balance,'' he said.
The currency gap is making it tougher for companies in the euro zone to chase new business, now that the business climate itself finally is improving.
``The most important thing is still worldwide demand, not currencies,'' said Olaf Wortmann, a business cycle analyst for VDMA, the German Plastics and Rubber Machinery Association. ``We see the worldwide upswing patterns now, but it is not easy because the euro is overvalued against the dollar.''
The currency issue is making global production capabilities important, Nelson said. With production and suppliers in multiple countries, manufacturers are less likely to have to pay a premium for parts or equipment.
Auxiliary equipment maker Wittmann Inc., with international headquarters in Vienna, Austria, will rely on its U.S. center and manufacturing in Torrington, Conn., to withstand currency fluctuations. That plant even may see increased business, Chief Executive Officer Michael Wittmann said.
``Because of the increased financial attractiveness of goods from U.S. dollar-based markets, their content in our products will, over time, further increase if the condition continues to persist,'' he said.
A weak dollar, though, is not necessarily going to translate to an easier ride for U.S. manufacturers, Nelson pointed out.
China - already a cheap labor market - pegs the value of its currency, the yuan, to the U.S. dollar. With the dollar sinking in value, so is the yuan, which is decreasing the cost of China's goods. Delphi has seen a steady increase in exports to Europe from its Chinese factories, he said.
