Drivers who have been thinking about buying a European luxury car (like the 2008 Jaguar XJ8 pictured above) may not want to wait too long.
As the dollar continues its long slide against the euro, prices of vehicles made by such auto companies as BMW AG, Porsche AG and Volkswagen AG's Audi unit have steadily crept upward ahead of U.S. and Japanese vehicles over the past few years. But while car makers have largely avoided substantial price increases so far, some analysts are warning that could change as soon as next year.
They "can't make money at the current exchange rates, so they either have to raise prices or start building them here," says David Healy, an analyst at financial-services firm Burnham Securities.
The dollar's weakness against the euro makes European products more expensive for consumers using dollars. If the trend continues -- and many analysts expect it will -- European car makers ultimately may have to raise prices on vehicles they build in Europe and sell in the U.S., shift production to the U.S. or other countries with lower costs, or simply live with lower profit margins.
So far, European car makers have been able to hedge against currency fluctuations by buying contracts that guarantee certain exchange rates. But many of these contracts are set to expire soon, analysts say. Hedging lessens the Europeans' need to quickly change prices with every currency fluctuation, but the strategy is of limited value during long periods of weakness for a particular currency.