How the Bullish Dollar Is Challenging CEO Decision-Making

Even a year ago, it didn’t seem likely that the United States would be emerging as the buckle on the belt of the global economy. And as reflected in the unexpected rise of the U.S. dollar, this can be a mixed blessing for many American CEOs.

Dragged down by productivity woes, hesitant consumers and overregulation, the U.S. economic recovery remains an erratic work in progress. But as 2015 is dawning, America’s economic performance indeed seems to be keeping the world afloat. And among other impacts, that performance has made the good ‘ol greenback more valuable than it has been in a long time.

“As much as we may have our problems in the United States, on a global basis, we’re still an island of growth, stability and confidence,” Ed Keon, managing director and portfolio manager of Quantitative Management Associates, told The Washington Post.

“I’d rather make $7 three times than $12 once. So I don’t want to have a knee-jerk reaction because of currency fluctuations.”

But for many CEOs, the dollar’s rise can be a decidedly mixed blessing. And a bullish dollar can test the mettle of even the shrewdest business tactician. It’s possible, with quick action, however, to take advantage of the dollar’s rise or at least buffet companies against it. But the temptation to do so can also backlash fiercely.

Consider as an example David MacNeil, founder and CEO of Illinois-based WeatherTech, a $400-million-plus maker of custom-fit automotive floor liners. WeatherTech exports to more than 20 foreign markets around the world, and the company’s revenues abroad keep rising.

But MacNeil, whose company proudly sells only products made in its Chicago-area factories, is keeping a close eye on WeatherTech sales, especially in Europe.

“We haven’t yet adjusted prices upward because our products are made in America,” he told CEO Briefing. “I’m trying to maintain and see where the euro goes [against the dollar] because the average person in Europe is still paying with euros. If we add 15% to the cost of the product over there, we’re going to lose some sales.

“I’d rather make $7 three times than $12 once. So I don’t want to have a knee-jerk reaction because of currency fluctuations.”

For CEOs of many blue-chip multinational firms, it’s already too late to escape the damage. Procter & Gamble, DuPont, Microsoft, Bristol-Myers, Johnson & Johnson and Pfizer, among many others, have reported that the strengthening dollar beat down their overseas businesses during late 2014 and hampered sales and earnings.

Such companies have to work harder to keep foreign companies from straying to foreign competitors that may undercut them with cheap prices. Some CEOs may have to order price cuts to keep foreign customers in their stable, Keon said.

Of course, on the flip side, companies based abroad see the strengthening dollar as the chance to sell more imported products to Americans. Among CEOs who can take advantage of that fact are Fiat Chrysler chief Sergio Marchionne. His company, rather serendipitously, plans to boost significantly the volume of Alfa Romeo sports cars that it imports to the United States this year, in a comeback to the market after a nearly 30-year absence.

Given the length of product cycles in the car industry, Marchionne hasn’t been responding to the dollar’s recent rise; but he couldn’t have scripted its timing much better.

Other U.S. CEOs, even with major operations abroad, are finding the stronger dollar mostly a boon. Alcoa, for instance, said the stronger dollar was a “major factor” behind its strong fourth-quarter earnings. The company saved in production costs because it mines much of its aluminum from Australia, Brazil and Jamaica, the Post reported, with currencies that fell against the dollar. But it sells most of its products in the United States, so sales weren’t affected by currency swings.