Dollar’s Strength Could Continue to Haunt US Automakers
Must Know: What’s Driving Major Automotive Companies
US dollar
On October 2, the US dollar (UUP) closed at 95.83, losing ~0.35% from its previous day’s closing. The weaker-than-expected employment data took a toll on the US dollar. The chart below shows the recent movement in the US dollar versus the basket of major currencies.
Impact on automakers
Ford’s (F) 2Q15 revenues were negatively hit by ~$2 billion on account of the stronger US dollar. General Motors (GM), on the other hand, took a hit of $2.2 billion in its 2Q15 revenues as the dollar gained against other currencies. As these companies have a global footprint, they are exposed to currency volatility.
Meanwhile, Japanese automakers including Toyota (TM) and Honda (HMC) could continue to benefit from the yen’s weakness.
3Q15 revenues
Although the dollar has not appreciated much in 3Q15 as compared to the previous quarter, it’s still significantly up from last year’s levels. Unfavorable currency movement could have a significant impact on Ford’s and General Motors’s 3Q15 revenues. We’ll hear from both these companies later this month.
Looking at the global turmoil and the relative strength of the US economy, the US dollar could continue to trade at elevated levels. Moreover, there’s a proxy currency war with countries letting their currencies depreciate to boost their exports. China’s currency devaluation is a case in point. Moreover, a possible rate hike by the Federal Reserve could also keep the dollar trading higher.
Along with the strength of the US dollar, automobile companies face the challenge of the slowdown in the Chinese economy. In the next part of this series, we’ll discuss recent trends in the Chinese automotive industry.
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