It's overlooked sometimes, but currency exchange is a major factor in shaping the global strategies of automakers. The question is how should automakers and suppliers react when exchange rates shift dramatically.
For decades, a weak U.S. dollar encouraged European and Asian automakers to build assembly plants in this country because it made economic sense. Their suppliers often joined them, either in the U.S. or in Mexico, where the peso is pegged to the dollar.
That helped create a strong North American auto production base that recently has exported more as a weak dollar made products more price-competitive elsewhere.
But the era of the cheap dollar may be over. A revived U.S. economy and global weakness have substantially strengthened the dollar against the euro, yen and other currencies in recent months.
The U.S. auto industry is beginning to feel the effects.
Imported products are more price competitive in the U.S., so European and Asian automakers are beginning to divert more vehicles from other markets to the U.S. Suppliers to North American automakers may import more parts and reduce local output.
Indeed, the strong dollar may be a long-term trend that ultimately reshapes decisions on where to source parts and vehicles. But let's wait and see.
As global automakers and suppliers have achieved a balanced manufacturing footprint over the past two decades, they have been able to avoid short-term reaction to currency shifts. They should stick with that strategy.