The rising dollar is putting U.S. manufacturers through the
equivalent of a new year’s fitness regime, causing pain for now but also
promising long-term gains in efficiency. After more than a decade of weakness,
the dollar began surging in mid-2014 against the euro and many other
currencies. That is making U.S.-made products pricier in other countries and
imports cheaper in the U.S.—a combination that is likely to expand the already
gaping U.S. trade deficit.
Past periods of currency strength in Switzerland, Germany
and Japan required manufacturers there to streamline processes and find niches
that allowed them to charge premium prices. Here in Freeport, on the fringes of
the Pittsburgh metro area, Oberg Industries is striving to hang onto its small
share of the global economy. The family-owned company, with 750 employees and
annual sales of about $130 million, makes metal parts for a host of products,
including oil-production equipment and door locks.
Oberg is moving out of some markets where competition is
based mainly on price. For instance, the company recently sold a plant in
Mexico where it made doorknobs, competing with Asian manufacturers. Oberg is
putting more focus on highly regulated markets, such as parts for medical
devices and aircraft. Because quality standards are higher, there is less
import competition, said Rich Bartek, Oberg’s chief operating officer.
Manufacturers have long been under pressure from
intensifying global competition, but the dollar’s sudden ascent adds more
urgency. Since mid-2014, the dollar is up nearly 19% against the euro and 17%
against the yen.
The rising dollar already has forced U.S. poultry companies
to accept lower prices for dark chicken meat, popular in overseas markets, said
Mike Cockrell, chief financial officer of Sanderson Farms Inc., the
third-largest U.S. poultry processor. Bulk leg quarters of chicken, a top
export product that sold for 48 cents a pound in mid December, now are selling
for 38 cents. Chicken processors still can turn a profit on those prices, as
along as sales of white meat in the U.S. remain brisk. But if prices sink to
very low levels, chicken processors may resort to selling frozen bags of dark meat
in U.S. grocery stores at cut-rate prices, as they have done before.
Firstronic LLC, a Grand Rapids, Mich.-based maker of printed
circuit boards used in cars and other products, serves its customers in North
America mainly with production from its plants in Michigan and Mexico, said
John Sammut, the CEO. It has set up joint ventures in the Czech Republic, India
and China so it can produce circuit boards there as well, depending on
customers’ needs and currency factors. For now, Firstronic is exporting from
Michigan to Europe circuit boards used to control car seats. If the dollar
stays strong, said Mr. Sammut, that production could be moved to the Czech
Woodward Inc., a maker of parts for aircraft and
various types of engines, based in Fort Collins, Colo., is trying to help some
overseas customers cope with the currency swings. On some contracts, it
includes clauses that adjust the price of a large order depending on currency
movements, so that the two sides share the risk. Bob Weber, chief financial
officer of Woodward, said the company could import more parts from countries
with weaker currencies. But that is difficult in highly regulated markets such
as those for aircraft, where each supplier must be certified for quality.
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