Some European automakers building products in the United States, especially at the premium end of the market, are now absorbing at up to a 40% disadvantage compared with prices commanded for the same vehicles in Europe. That was the message delivered today by John Hoffecker, a managing director of AlixPartners LLP and co-head of the firm's performance-improvement consulting practice worldwide, in an opening keynote speech to more than 200 auto-industry executives at the 10th " />

Issue: May 2008


European Automakers Building in the U.S. Now Forced to Sell at Up to a 40% Discount, Says AlixPartne



by Steve Barclay

Some European automakers building products in the United States, especially at the premium end of the market, are now absorbing at up to a 40% disadvantage compared with prices commanded for the same vehicles in Europe. That was the message delivered today by John Hoffecker, a managing director of AlixPartners LLP and co-head of the firm's performance-improvement consulting practice worldwide, in an opening keynote speech to more than 200 auto-industry executives at the 10th Annual Global Automotive Conference sponsored by the non-profit Global Advanced Leadership Center in Bowling Green, KY.

Noting that in the past five years the U.S. dollar has depreciated more than 30% versus the European euro, and that some foreign, especially European, automakers manufacturing in the U.S. are still sourcing less than a third of their parts domestically, Hoffecker asserted that, "These European automakers should be quickly rethinking their sourcing strategies and moving faster toward more 'natural hedging' -- more local parts purchases and investments.

Clearly, some are not moving fast enough."

Hoffecker also stressed that all auto companies and suppliers, no matter what their origin, need to be more fully aware that outsourcing parts purchases and manufacturing to countries like China is no longer as simple a calculation as it once was. "In addition to the recent dramatic shifts in currency exchange," he said, "labor costs in the most industrial part of China, the southeastern provinces, have risen 50% in the past four years." He also noted, for those interested in using China as an export base, that many of the government export credits in that country have been recently eliminated or greatly reduced for a number of auto part exports. Using the example of tires made in China, Hoffecker noted that due to a combination of currency swings and China's recent reduction in a value-added-tax rebate for exports, Chinese tires are now 16% more expensive to export to the U.S. than they were in 2007.

"Fast-changing currency exchange rates and sky-rocketing costs in general in some developing countries are clearly changing the game when it comes to making optimal sourcing decisions," said Hoffecker. "Countries like China and India are still a very attractive venue for automakers and suppliers, particularly when they are servicing the local markets as well as exporting. However, other low-cost countries such as Mexico are today more attractive than they were just a couple of years ago because of their closer tie to the U.S. dollar and lower labor inflation rates."

"Sourcing and 'make-versus-buy' decisions require exponentially more complex today than in the past," he continued.

Much of the data in Hoffecker's speech came from the AlixPartners Global Automotive Review(TM), an annual analysis considered to be one of the most exhaustive of its kind. The study covered worldwide a record 51 automakers, 25 heavy-truck manufacturers and 297 suppliers.

About AlixPartners

AlixPartners is a leading global business-advisory firm offering services across four main disciplines: operational performance improvement, financial restructuring and bankruptcy reorganization,

litigation consulting and financial advisory services. The firm's

expertise is in helping clients anticipate, evaluate and successfully resolve urgent, high-impact business challenges across an increasingly complex legal, regulatory and economic landscape.

Drawing on the experience of more than 700 employees from 13 offices across North America, Europe and Asia, the firm commits small teams of seasoned professionals to deliver results when it really matters.

For more information, visit

www.alixpartners.com.

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