I got a good laugh myself when Rodney first told me his story of the $800 plastic button. It reminds me of similar gripes my dad had when he drove a BMW – the parts were just ridiculously expensive!
But let’s go beyond the price of the widgets and consider the price of the actual car…
The problem is, there’s not just ONE price. Given wild fluctuations in the value of the euro, the same Mercedes could cost $60,000 today and $80,000 in a few months.
To show you what I mean, here’s a chart of the EUR/USD going back to 1998. When the chart trends higher it means the euro is getting relatively stronger against the U.S. dollar.
A strong euro makes it more difficult for German car companies to export to foreign markets. But, it also makes the very same car more affordable to domestic buyers paying in euros.
Consider the wild prices swing of a Mercedes E65 AMG, which now retails at just under $90,000 (€68,000).
Just last August, you’d have forked over $98,000 (about 10% more).
It was much cheaper in euro-terms at the beginning of 2008. Then, when the euro was strong, at about 1.60, this same car cost just $73,000.
Dealerships don’t really manipulate sticker prices to this degree. These fluctuations are largely currency-related.
When the euro is strong, foreigners must pay more for their Mercedes. When they must pay more, they’re not necessarily as quick to buy. So in the short-term, it’s the manufacturers that take the hit when exchange rates cripple demand.
There is one silver lining, for German car makers, in this scenario. The corporate culture and tax system in Germany encourages companies to buy “company cars” for their employees. And not Ford Tauruses, either. They get a 5-series or an A6… must be nice!
This is great for the German automakers as it props up demand when a strong euro weakens demand from foreign buyers.
Regardless, this year should be good for euro zone automakers. We see the U.S. dollar strengthening throughout the year. That means a cheaper euro… and cheaper Benzes for U.S.-buyers.
If you haven’t done so already read the Survive & Prosper issue on “Teutonic Shift Ahead?“
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