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Strong euro hurting auto sales: CEO

DaimlerChrysler AG and its European rivals may continue to feel the pinch of a strong euro next year as the exchange rate against the greenback has cut the company's sales in Taiwan, a company executive said yesterday.

DaimlerChrysler, which distributes Chrysler, Smart, Mercedes-Benz and Jeep brands, sold 350 Smart compacts this year as of yesterday in Taiwan. The company said in March that it hopes to sell 700 of the Mercedes-engineered compacts this year.

"For Smart, the exchange rate has a tremendous influence, more than on Mercedes-Benz, because Smart is a low-end model and is very price-sensitive," Wolfram Geisler, the incoming president and CEO of DaimlerChrysler Taiwan Co, said.

Geisler made the remarks on the sidelines of a handover ceremony yesterday in Taipei. He will take over for former president and CEO Volker Harms next month.

The strong euro has forced DaimlerChrysler to hike car retail prices by about 20 percent this year, Geisler said. During the same period, the European currency has surged by approximately 17 percent to US$1.225.

A Smart compact, which originally retailed at about NT$500,000, surged to about NT$700,000 in the middle of the year due to the appreciation of the euro, the company said. The price fell to around NT$600,000 recently after the greenback rebounded slightly, according to DaimlerChrysler.

Asked about possible countermeasures to the exchange rate fluctuation, Geisler said he can only pin his hopes on a soft euro next year.

"We hope the euro will drop to the normal US$1 to US$1.16 bandwidth," he said.

A dealer at a local bank was skeptical about the automaker's hopes.

The euro is expected to break the previous high of US$1.2276 after the Christmas holiday, as the dollar could lose momentum on strong US retail sales, said Yang Kung-yi (楊恭逸), a currency trader at Shanghai Commercial and Saving Bank (上海銀行).

"Looking ahead, it'll be a bad year for the US currency next year," Yang forecasted. The mounting US fiscal and trade deficits and the expectation that the Federal Reserve may keep key interest rates on hold will lead to a weak dollar, he explained.

A car industry watcher also saw the exchange rate issue as a thorny problem for European automobile makers to contend with.

"It's a formidable problem for euro-zone car makers as the high euro, which leads to high prices, will definitely weaken consumers' buying sentiment," said Frank Tsai (蔡祐文), an analyst with SinoPac Securities Corp (建華證券). "And they can do nothing about it."

Medium-priced models under the NT$1 million-mark, such as Opel brand, will suffer the most because potential car buyers are more price-sensitive than those that can afford luxury cars, Tsai said.

Though the exchange rate problem will remain a key issue for DaimlerChrysler to handle, Geilser still held a cautiously optimistic outlook about the local auto market for next year due to an improved economy and the lack of a re-emergence of SARS.

"We expect to hit a high level next year [in terms of car sales]," he told reporters.

DaimlerChrysler expected Smart and Chrysler sales to double next year to 700 and 1,000 units respectively, he said. The luxury Mercedes-Benz sedans, however, are expected to maintain the sales level of 5,000 vehicles recorded this year, he added.

Luxury car sales constituted about 5 percent of the auto market's 400,000 unit sales this year.
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