Currency Risk Drives Daimler's Move To Alabama

fromWBHM

Daimler employees in Germany protesting the proposed move of some production to the U.S. i i

Daimler employees in Sindelfingen, Germany, protest on Tuesday the proposed move of some production of the C-Class sedan to the U.S. Thomas Kienzle/AP hide caption

itoggle caption Thomas Kienzle/AP
Daimler employees in Germany protesting the proposed move of some production to the U.S.

Daimler employees in Sindelfingen, Germany, protest on Tuesday the proposed move of some production of the C-Class sedan to the U.S.

Thomas Kienzle/AP

Automakers around the globe are looking for ways to save money. The German carmaker Daimler AG says it has found a way by moving some production of its popular Mercedes-Benz C-Class sedan from Germany to Alabama, reducing the company's exposure to exchange-rate risks.

The C-Class is Mercedes' most popular model in the United States. The company says it will shift 20 percent of production to its existing Alabama factory beginning in five years.

University of Alabama at Birmingham finance professor Andreas Rauterkus says the move makes sense because of the exchange-rate risks the company faces by producing the car in Germany, where Mercedes has to pay for costs in euros, and then selling the vehicle in the U.S., where the company generates revenues in dollars.

"I have to exchange those dollars back into euros, and every time the dollar loses some of its value, I'm getting less euro back," Rauterkus says, explaining Daimler's dilemma.

He says that by making the U.S.-bound vehicles in Alabama, Mercedes can better forecast profits. It also gets lower labor costs. Alabama is also a right-to-work state, while Germany is highly unionized. German workers annually have 26 days of paid vacation, 10 holidays and unlimited sick days, he says.

German workers are not happy about losing these benefits. Workers protested this week at a plant outside Stuttgart, Germany, that will lose 1,800 jobs.

The move brings 1,000 jobs to Alabama — a region that's positioning itself to be a leader in auto manufacturing.

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