The Truth About Detroit's Export Dreams

Unlike arm wrestling or Martini making, when it comes to currency, there’s an upside to being weak. Especially if you are, say, an American car manufacturer fighting pesky foreigners. As the value of the dollar falls overseas, the price of American-made cars and trucks falls as well. Theoretically, a lower price should mean increased demand. So, is the declining U.S. dollar the cocktail Detroit needs to lift their spirits?

Between 2002 and 2007, American auto exports doubled, from about $25b to $50b. Over the same period, imports grew to $150b (they’ve leveled off for the last 18 months). The bad news: exports from General Motors, Ford and Chrysler combined equals a third of the vehicles the US imports. What’s more, roughly half of The Big 2.8’s exports are sent to Mexico and Canada.

The good news: America has stopped demanding that more cars built elsewhere. The rest of the world is slowly opening to the important of American metal.

Russia is a growing market for big SUVs (while America is growing parking lot for same). Sadly, Russian import tariffs make the Berlin Wall look like a welcome mat. In this they are not alone. And over the last few years, U.S. foreign policy has been something less than persuasive when it comes to removing trade barriers. Meanwhile, the Euro market has deflated. And the go-go growth in India and China is slowing.

Even so, both GM and Ford are escalating exports, specifically those aimed at China and Latin America. Chrysler is shifting some of its manufacturing back to the States. It’s a slow process. Chrysler, for example, plans to move more Jeep production stateside as soon as its contract with Austria’s Magna Steyr runs out. In 2009. All three automakers suffer similar hand-tying. And none of this is happening in a vacuum.

While Detroit tries to adapt to changing economic conditions, Aichi and Munich move their pieces around the board as well. Every major auto manufacturer has a facility in the U.S. As the dollar appears to be in the doldrums for the foreseeable future, many are looking to expand or add capacity in the New World. BMW is building the next generation X3 in its Spartanburg plant, right along side the X5. (Magna Steyr will be losing that contract too.) Volkswagen/Audi/Porsche is/are looking to construct a new plant in the U.S., possibly North Carolina.

All of this is good news for the American worker. Mitsubishi not only builds vehicles in American for Americans, they export. The numbers are still paltry– Mitsubishi will export around 12,000 cars this year– but auto exports are trending upwards. Honda, Toyota and Mercedes export from the US. They are adjusting quickly.

Exactly how much a discounted dollar changes price is as murky as any car deal. Carmakers contracted for the steel, copper, plastic and other commodities being formed into a car this morning months or years ago. The parts going into a vehicle come from all over. While the dollar slid 11 percent against the Euro in 2007, the rate is different for other currencies. The dollar has been in a steady decline for six years, so everything is in flux. It is not unreasonable to assume a 10 to 20 percent premium on Japanese and European models. Or the flip side– 10 to 20 percent off American rides.

So the Cobalt should be the new Wii, right? Regardless of how much The Big 2.8 would like to make money in real estate and mortgage derivatives, it all comes back to cars. The bottom line: Detroit did not prepare well for this moment.

Some cars built in America are, in theory, ready for foreign service: Jeeps, Corvettes, Cadillacs, Chrysler minivans. But these are specialty items not found in the bread and butter aisle of the market. They sell in tiny numbers, if at all (Cadillac BLS). Although GM (Chevrolet, Buick) and Ford (Ford) have some brand equity in foreign climes, it’s based on locally/foreign-made products.

It’s hard to think of a single Big 2.8 product that’s ready to be shipped abroad in large numbers. While GM-Ford-Chrysler scramble to adjust their U.S. product mix to reflect high fuel prices, they’re behind the curve, and will be for some time. And despite all this talk of downsizing, American cars are still over-sized for most foreign markets. The constant bloating of transplant product proves that size still matters, and doesn’t translate.

Exports from the States have increased, but it is going to be real tough to make those numbers grow without product the rest of the world wants. Leaving out North America, the Ford F-150 is not the world’s best selling vehicle. The rest of the globe likes lithe, economical Golf-Corolla-Civics. As Detroit wrestles with another lost opportunity, let me suggest a good, stiff drink.