Weak Dollar Can Bode Well for Manufacturers

For most American manufacturers, the weaker dollar is a welcome development because it makes U.S. exports cheaper overseas, enabling them to sell more goods.

However, some U.S. manufacturers are viewing recent fluctuations in the foreign-exchange market with ambivalence. That's because in a global economy business ties can be complex.

Take the aerospace industry. It is often depicted as ground zero in trade wars such as U.S. plane maker Boeing taking on European contender Airbus.

But in reality, the lines aren't so easily drawn, according to John Kornegay, president of Bloomfield, Conn.-based Kamatics Corp., a subsidiary of Kaman Corp., which provides high-tehcnology products and services to industrial commercial and defense markets.

"The aircraft industry has become a very international industry. While aircraft might have a Boeing nameplate in Washington or the Airbus nameplate in France, the parts for those airplanes are made all over the world," he said.

Kamatics makes bearings for commercial and military aircraft. It manufactures them in Connecticut but a third of its products go overseas.

Airbus is a big customer. So is the Brazilian company Embraer.

The conventional wisdom is that the declining dollar is good for manufacturers like Kamatics.

"It helps us if we're in head-to-head competition for a particular application and (the competitor) is building in Europe. We now have a price advantage because our costs are the same but our price is now 40 percent less that it was just three years ago against the Euro," Kornegay said.

Most of the bearings that Kamatics makes are produced under long-term contracts. Prices were set years ago and not at the whim of today's currency swings.

Yet, in another way, the dollar's decline is actually bad for Kamatics. In an effort to break into the European market the company built a plant in Germany. With the Euro up, labor costs there have become much more expensive.

"In the short run they can help or hurt somebody pretty badly," said Kornegay. "In the long run they don't help anyone; they just make business more unstable."

As the economies of the world become more intertwined the impact of currency swings becomes more ambiguous. Increasingly, large companies have substantial investments and operations overseas. That protects them from economic downturns in any one country, and it also minimizes the risks of currency swings.

The small- and medium-sized companies, however, are often most affected by the fluctuations.

At Eco-Air Corp., in nearby New Haven, Conn., is an example. The company makes alternators for emergency vehicles and utility trucks. When the company opened in the early 1990s its manufacturing was done in Romania where wages were pretty low. But in early 2005, Romania revalued its currency to bring it more in line with other European currencies and labor costs began to climb.

President Pete Knutsen says by 2006 wages had grown so much that Eco-Air had to cease manufacturing there.

"We made a very tough decision to not manufacture any product in the meantime. We went through a very tough financial period," Knutsen said.

After more than a year's hiatus Eco-Air resumed manufacturing in China. Knutsen says the company is bouncing back. With the dollar down so much, he's now doing business in Iceland and the Netherlands and he's making new contacts in Canada, the Middle East and Asia.

"You know I think it's true that whenever one door shuts another door might open. So if you're nimble enough to figure out what kinds of opportunities are open to you, you can benefit from exchange-rate fluctuations," he said.

Correction Dec. 3, 2007

The audio does not make it clear that Romania "redominated" its currency in early 2005, essentially revaluing it to bring it more in line with other European currencies. This was seen as a preliminary step before the adoption of the Euro, which is to take place within a few years.

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