The expected recovery of the American car business was supposed to be based on huge cost cuts at all three domestic companies and improved product lines based largely on a desire among US drivers to have more fuel-efficient cars.

It turns out that the value of the dollar may do more to vanquish the Japanese and European car firms than the restructuring of the US  industry has, at least in the short term.

Honda’s (HMC) CEO Takanobu Ito said “It’s tough. Even with the dollar at 90 yen, we are practically at the end of the line,” according to the AP. That ratio has recently been as low as 88 yen. The large Asian car companies, including Toyota (TM), Nissan, and Hyundai, are struggling with the same problem. That means they may have to raise sticker prices to have any chance of making a profit on the sales of cars and light trucks in the US market.

The same holds true for many European luxury car makers. A weak dollar is hurting the margins of the US businesses of Mercedes and BMW making it much more likely that they will have to raise what they charge for their cars.

The status of the dollar will allow US manufactures to keep the prices that they charge for their products very low. Car sales in America may rebound very slightly next year, but profits are still likely to be based on market share. The dollar is likely to have a major role in how the pie that is the US car market gets split.

Douglas A. McIntyre

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