Market Overview

How A Strong Dollar Boosts Foreign Auto Sales

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Automakers have benefited from falling crude prices, as they have bolstered the demand for new cars and made manufacturing costs cheaper.

Companies like General Motors Company (NYSE: GM) and Ford Motor Company (NYSE: F) have cheered higher sales and more demand for SUVs, but no automakers have benefited more than those based abroad.

Economies across the world have been moving in the opposite direction from that of the US; central banks in Japan, China and Europe are all taking steps to ease further, while the Fed prepares to raise interest rates.

The stark contrast has shifted the exchange rate in favor of anyone outside the US, something automakers plan to take advantage of in the coming year.

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With a strong dollar making US goods more expensive, Asian and European brands are looking to expand their footprint in the US market while the door is open.

Most companies have hedged in order to protect themselves from currency swings, though it's worth pointing out: The strong dollar means more profits for companies based in another country.

Those who import a large percentage of their vehicles for sale in North America, for example, will see the largest benefit. Companies like Daimler AG’s Mercedes-Benz, which imports 35 percent of sales and Toyota Motor Corp (NYSE: TM), which imports around 29 percent of the cars sold in North America, could enjoy increased margins.

Volvo AB is another company planning to use the exchange rate to its benefit in 2015. The auto manufacturer plans to begin exporting vehicles made in China to the US for sale. The company said it will import around 5,000 vehicles this year to take advantage of the dollar’s rally.

 

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