LONDON - The euro is taking a dive.
Since it was introduced one year ago, the world's newest currency has fallen 15 percent against the dollar and 12 percent against the British pound.
Some financial analysts believe the euro's initial value was set artificially high, and that only now has it reached its proper value.
'The euro's weakness is much milder than sensationalists would have it,' said David Bloom, a currency strategist with Hong Kong and Shanghai Banking Corp.
Soothing words, perhaps, but the euro's weakness has divided automakers into winners and losers.
Winners include companies with assembly plants in mainland Europe. That group includes companies such as the Volkswagen Group, Renault, Peugeot, Fiat and Daim-lerChrysler.
Losers include automakers that export vehicles to euroland. This includes companies with plants in the United Kingdom, Japan and any other noneuro nation.
Some companies, such as BMW AG, are caught in the middle. BMW's plants in Germany are competitive, but its Rover subsidiary has been hurt badly.
The UK's woes
Life is particularly difficult for anyone trying to sell cars and trucks built in the United Kingdom. For example, Toyota's U.K. operation built 172,000 cars in 1998, of which 80 percent were exported to mainland Europe.
Toyota sales are rising in Europe, but revenues 'are severely impacted' because of the strength of the pound sterling, said a spokesman for Toyota Motor Manufacturing (UK) Ltd.
'We wouldn't put a figure on how much it costs us, but it is significant,' the spokesman said. 'We would like to see a weaker pound.'
Toyota's factory has adopted a flexible payment system for its 200 European suppliers. 'We will deal with them in euros, their own currency or sterling,' the spokesman said.
Automakers have been forced to adopt artificial measures to smooth out the currency's peaks and troughs. These normally involve using some form of fixed exchange rate, often negotiated annually.
In effect, these purchasing agreements transfer the pain of currency losses from the local subsidiary to the corporate parent.
For example, Toyota GB buys its Japanese-built cars through Toyota Europe at an agreed-upon exchange rate, which helps insulate it from fluctuations of the yen and sterling. Mitsubishi Motors in the U.K. buys direct from Japan, again at an agreed exchange rate.
Honda UK buys all vehicles in sterling from Honda Europe - even cars built in the U.K. - on a six-month fixed exchange rate cycle.
'We try to predict what the currency market will do - its swings and roundabouts,' said Paul Ormond, head of public relations at Honda UK.
Honda exports 72 percent of its U.K. production to mainland Europe, with the U.K. taking the balance.
'Trying to keep prices down in Europe is very difficult. We could all do with the relief of a weaker pound,' Ormond said.
One option is to build where you sell. Toyota, for example, decided to build a new factory at Valenciennes, France, rather than expand its existing U.K. plant. In retrospect, it seems like inspired foresight.