You might think that the seismic shift going on in the US marketplace that is seeing smaller cars in vogue would be a trend that would play into the hands of European brands. And you might think they would be rubbing their hands at the prospect of higher sales in the US. But you’d be wrong. The reason? The weak dollar.
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A report in BusinessWeek notes that while in May Ford sold 53% more Focus compacts than it did a year ago, Volvo, Volkswagen and BMW all sold fewer of their small models.
But the report suggests that Volvo, VW, BMW, and their peers are ‘limiting the supply of some of their cars in the US because they aren’t profitable’.
Earl J. Hesterberg, chief executive of Group 1 Automotive (GPI), a Houston megadealer with two Volvo stores, told BusinessWeek that he could sell 5 to 10 times as many S40 compact sedans if Volvo reinstated a lease deal it dropped in March to suppress sales. But “there isn’t a scenario where we can sell cars under $30,000 at a profit,” says Volvo Cars of North America President Doug Speck.
The report goes on to say that European carmakers are victims of a punishing exchange rate and that over the past 12 months, the euro has risen 13% against the dollar.
The suggested retail price for a Volvo S40 T5 is $32,085, says Edmunds.com. By contrast, a Ford Focus goes for $16,650. Even VW, which two years ago made a big fuss of selling its Rabbit, Beetle, and Jetta—built in Mexico and Germany—for $17,000 each, is limiting supply of some models because they contain so many profit-killing European parts, the report says.
The BusinessWeek report also notes that Volkswagen is close to choosing a location for a new US factory and that Volvo may have to consider building some models in the US alongside Fords.
