A rising euro and high labor costs are leading at least two European manufacturers to consider building new plants in the U.S.
The euro's seemingly inexorable drive toward the $1.50 mark may have slowed down for now, but companies in Europe seem to have sped up their search for strategies in dealing with the newly weak dollar. European jet-maker Airbus and auto manufacturer Volkswagen both have decided on a solution: The two companies are actively looking into building factories in the United States.
According to a report in the Monday edition of the Munich daily Süddeutsche Zeitung, Airbus is looking into building a final assembly plant in Mobile, Alabama. The prerequisite for such a move, the paper reports, is a contract for 180 refueling aircraft the United States Air Force has tendered. Airbus is competing against Boeing for the sale, and a final decision won't be made until the beginning of next year. Airbus is targeting the relatively poor state of Alabama in an effort to win political support for its bid.
Were it to win the contract, Airbus would modify the passenger jet A330 to meet the US military's requirements. The factory would also be able to produce the civilian version of the plane, resulting in massive exchange-rate savings to Airbus. Because the plane-maker sells its products in dollars, a $0.10 change in the exchange rate cuts a €1 billion (nearly $1.5 billion) hole in the Airbus bottom line. Furthermore, the company's Power 8 savings program, announced earlier this year, is based on an exchange rate of $1.35 to the euro.
Recent drops in the dollar's value have led Airbus CEO Thomas Enders to warn that more savings measures may be on the way. On Monday, the euro climbed down further from last week's high of just under $1.50 and was trading at $1.466.
Meanwhile, Volkswagen is also looking to build a factory in North America in order to minimize the hit it might take should the euro remain strong. "Our scouts are looking intensively for possible sites in the US and Mexico," Jochen Heizmann, VW's head of production, told the industry weekly Automobilwoche over the weekend. He said the company needed to develop production capacity outside the euro zone.
The move had been hinted at in mid-November by the head of Volkswagen of America, Stefan Jacoby. He said that the factory would likely be built in the Eastern Time Zone to facilitate communications with the mother ship in Germany, but no concrete plans have been mentioned. Jacoby said at the November Los Angeles Auto Show that an announcement on a North American factory would be made within the next six months.
A recent study by the Center for Automotive Research, completed prior to the recent fall of the dollar, found that autoworkers in Western Europe make almost $10 more per hour than their colleagues in the United States make.
Volkswagen could ultimately decide to expand its factory located in Puebla, Mexico, but the company mostly produces smaller models there. VW is interested in expanding the number of models available in the US and seeks to double its current sales on the continent to 800,000 units per year.
VW used to produce cars in a factory located in Pennsylvania but closed it in 1987 after sales of the models built there took a dive. The German carmaker said last week that it was investing $14.1 billion in production capacity around the world. Last week, the company opened its first factory in Russia.