Monday, September 8, 2008

The Ford ECOnetic is on sale, but not in America

. Monday, September 8, 2008

Business Week has a very interesting article this week detailing an often overlooked consequence of the relatively weak US dollar. The Ford ECOnetic, a 65 mpg vehicle that goes on sale in Europe this November, is part of a new line of clean diesel engine vehicles that are roughly 30% more fuel efficient and as clean or cleaner than traditional gasoline engine vehicles. However, don’t expect to see this more efficient, clean diesel car at your local Ford dealership anytime soon.

The reason? The Ford ECOnetic’s diesel engine is manufactured in England, where labor costs are significantly higher than other vehicle manufacturing countries such as Mexico and Brazil. The higher labor costs coupled with the weakness of the dollar relative to the British pound, has led Ford to conclude that the vehicle would not be price competitive with cars already available on the US market. The relative strength of the British pound (the exchange rate is currently 1.7687 USD to 1 GBP) has significantly increased the cost of importing the vehicle into the United States, thus increasing the price tag that consumers would have to pay.

When analyzing the impact of currency levels on trade, most analysts simply point to the fact that the weakness in the dollar has led to a decrease in total imports and an increase in total exports. However, the most interesting consequence of this phenomenon is not that the weak dollar has increased net exports, but that there is evidence to suggest that the dollar’s weakness has constrained the variety and quality of goods available in US consumer markets. International economic theory is in line with what we are currently seeing with the Ford ECOnetic. Economic theory would imply that a relatively weak currency will constrain the variety of goods available in the domestic market as goods that normally would be imported would be priced out of the domestic market because of the weakening domestic currency. This is a consequence that is often overlooked by American consumers who typically tend to believe that the same goods will be available in their grocery stores or their automobile dealerships regardless of the level of exchange rates. 

Check out the article here: Ford ECOnetic

The Ford ECOnetic is on sale, but not in America
 
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