How's this for a wake-up call on the state of the dollar: "If the dollar keeps slumping against the euro, the United States could become the next Mexico -- a low-cost manufacturing haven for European automakers and suppliers." With the dollar at $1.38 to the euro as of now, and expecting to drop further, European makes either need to raise prices, move production to "cheaper" countries like the US, become more efficient, or be happy with less profits. Fewer euros in the till isn't really an option, and price wars are already difficult enough to navigate. That leaves relocation or finding cost efficiencies in other markets.

The article in Automotive News goes on to detail how European manufacturers like BMW and Mercedes are actively moving production to their Spartanburg, South Carolina and Tuscaloosa, Alabama factories, respectively. VW is considering its options for an American plant, but will stick with Mexican operations for now. Audi's approach, since it only sells 10-percent of it's European product in the US, has been to find cost efficiencies in markets like China. Other companies looking for such natural hedges include Magna, which recently lost a huge amount of production at its Austrian plant. The Canadian supplier and manufacturer is looking at building a factory in America to ease the pain.

The market is being watched closely, and there are too many factors in play to know who will do what yet, but some analysts think the dollar might drop to $1.50 against the euro. If so, said John Lawson, chief auto analyst for Citigroup in London, "Either the dollar has to change, or the business model has to change."

[Source: Automotive News, sub req'd]