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Importers Wrestle with Unstable Dollar

Published December 1, 2008

BY MATT WIEBE

FORT COLLINS, CO—Tom Petrie was ready to raise prices on his European product line in January, but then economic turmoil struck and the dollar’s value went up while the euro’s value declined. Petrie is still planning to post revised prices in January, but they may be lower.

In July, it took $1.58 to buy a euro, but by last month the euro was down to $1.28, making products priced in euros 19 percent cheaper in the U.S. market. The problem for importers is that the dollar lost value over the past two years. So is the dollar’s rebound over the past four months to be trusted?

“No one is going to announce any changes in pricing today because anything could happen tomorrow. But if the dollar stays strong through the end of the year, then I expect pricing could reflect that,” said Petrie, president of Velimpex, importer of European products from Effetto Mariposa, San Marco and Wippermann.

German brake and suspension manufacturer Magura made a big push into the U.S. market this year, but the weak dollar priced its products out of the market. Jeff Enlow, Magura USA’s general manager, welcomes the strengthening dollar because it will help his aftermarket business. But the euro needs to drop further to help his OE sales.

“Around $1.20 to the euro will not really help us pick up any OE business in the U.S. But if the euro drops below $1.10, then I think we will be able to compete for OE business,” Enlow said. “Right now it’s funny money and no one is making any commitment or willing to revise pricing until things settle down a bit.”

Outside the bike market, production prices fell 2.8 percent in October, the largest drop on record. However, producers said the drop had little to do with falling raw material prices, which will take time to impact the market. It was the drop in oil that had an immediate impact.

On the flip side Paul Aieta at Mountain Racing Products, a U.S.-based exporter, said its international distributors are scaling back orders and slowing down payments.

“Given the volatility in the currency market, I expect they are hoping that the dollar loses its value again. But I can say the strong dollar is really having an impact on our foreign business and things are looking very different right now than they did at the fall shows,” said Aieta, MRP’s vice president of sales and marketing.

Everyone in the industry agrees that metal prices and currency exchange markets are too volatile to predict any short-term change in the market. However, most say material prices will continue to slide because the recession is putting a worldwide damper on manufacturing and construction. If the strong dollar and cheap oil lasts for a quarter or two, then prices will come down.

The average wholesale cost of a bike climbed 8 percent this year to $316, according to the Bicycle Product Suppliers Association. Most of the price increase is attributed to climbing oil and material costs. But suppliers say the unpredictable economy will make them conservative when it comes to changing prices—and pricing for 2009 model bikes is already set.

“With prices going up so quickly the last few years we worked hard to insulate the U.S. market even though it means we trim our margin. And last year was the first time we had to make a mid-season price adjustment and that was hard,” said Brett Hahn, Continental’s North American sales manager. “Right now we have no plans to change pricing. If costs continue falling into the start of the season, we may run special spring programs as we have in the past.”

Many Asian currencies like the Chinese RMB and New Taiwanese dollar are tied to the U.S. dollar, so if the euro falls in value against the dollar, it also falls against Asian currencies.

“Our European office is pretty excited about Ride-On in Taichung and picking up some OE business because of recent currency swings. But it’s hard to know if the excitement is due to the falling euro or the surprising interest in the new 11-speed,” said Tom Kattus, general manager of Campagnolo North America.

“Most of our business in the U.S. is aftermarket. If the dollar remains strong I expect we will see some price reductions, but it’s impossible to predict. We are also instigating new controls on distribution, which also impact pricing, so we don’t plan to revise the pricing we released at the shows,” Kattus added.

Falling raw material costs will have the greatest impact on future pricing, but it will take time for these cost savings to make it to market. Over the last few years as material prices climbed manufacturers invested heavily in inventory, thinking it’s better to buy too much today and beat tomorrow’s price increase.

These high levels of inventory will take time to flush through the system and manufacturers will keep prices high on parts made with this expensive material to remain profitable.

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