LONDON -- The sharp fall of the dollar against the euro in recent weeks threatens one of European carmakers' last bastions of profitability.
While profits on new-car sales are under growing pressure in Europe, the strong American dollar in recent years has returned fat profits to European automakers selling there. A strong dollar means foreign companies get more of their local currency for every unit sold in North America.
But the euro has risen 10.8 percent against the dollar since Jan. 1, and is up 15.5 percent from its low this year of 85.6 cents, set Feb. 1. European car companies say they are protected by hedging strategies and won't suffer any immediate damage from the runup, but analysts say a prolonged slump in the dollar's value will mean trouble.
German manufacturers face a serious threat, warns Xavier Gunner, auto analyst for UBS Warburg in London, and other experts.
"If this carries on for the next two or three years, they will have to start thinking carefully about pricing strategy," he said.
But Hendrik Emrich, automotive analyst for Berenberg Bank in Frankfurt, cautions that even luxury makes don't have much leeway on prices anymore.
"They will have a hard time increasing their (U.S.) prices," he said. "Those premium segments of the market are getting more competitive. If you increase prices, you have a direct impact on the demand for your cars."