European Exporters Suffering from Weak Dollar

LONDON — Thanks to a swooning U.S. dollar, Rolls-Royce, the British maker of airplane engines, saw its profits tumble by more than a third last year.

The luxury brand giant Louis Vuitton raised the prices of its handbags and clothes in the United States by 5 percent.

And Airbus considered shifting more production to the United States, much to the chagrin of the French government.

"The weak dollar is a sword of Damocles hanging over our heads," the chief executive of the aircraft manufacturer's parent EADS, Louis Gallois, recently told reporters.

Everywhere one looks, currency woes are eroding the profits of European companies that pay most of their costs in strengthening euros, but collect most of their revenues in declining dollars.

Since the start of 2002, the once-mighty greenback has plunged in value by nearly 40 percent against the euro and 30 percent against the British pound. On Thursday, the dollar hit a record low against the euro, which peaked at $1.53. The British pound has edged higher this week as well, to $1.99.

The falling dollar is even tempering the good times for luxury brands long considered the most resilient sector of the market.

For example, sales of Britain-based Jaguars and Land Rovers have been falling in the United States, largely because of the dollar.

James Lawson, senior research director at Ledbury Research, a consulting firm in London, said a new study shows found that top-earning Americans — those taking home more than $200,000 a year — would cut back their spending by 3 percent if the dollar's value falls 10 percent, and by 6 percent if the dollar falls 20 percent.

"Most definitely, the falling dollar has affected European luxury goods firms that exported to the United States," said Milton Pedraza, chief executive of the Luxury Institute, a research firm in New York. "Recently both Gucci and Louis Vuitton announced price increases, and we know anecdotally that many others have been increasing prices since 2004 to leverage the good times and insure themselves."

Pedraza believes firms will have to be more careful of price sensitivities now that the United States has entered tougher economic terrain.

"American wealthy consumers are resilient, but they are not immune completely," he said.

Seen from the other side of the Atlantic, the weak dollar is bestowing a healthy price and cost advantage to U.S. exporters and U.S. multinationals.

For McDonald's — that American symbol of globalization — "the foreign currency situation has had a positive impact," and strong sales in Europe have helped the chain weather domestic troubles, said spokeswoman Heidi Barker.

"U.S. companies are enjoying strong export growth due to a combination of the lower dollar and higher demand and growth abroad than at home," said Daniel Hamilton, director of the Center for Transatlantic Relations at Johns Hopkins University in Baltimore.

"In fact, despite weakness at home, corporate America is in the midst of a five-year global profits boom," he said. "Europe has led the way, accounting for roughly half of total U.S. global earnings in 2006 and a similar share in the first half of 2007."

For their part, European Union businesses said this week they were feeling the pinch.

"We said when the euro was above $1.40 that we feel the pain. When the euro is above $1.50 it is alarming," Ernest-Antoine Seilliere, president of the EU employers' group BusinessEurope, told the Associated Press.

He said the weak dollar had some advantages for Europeans in that it cuts the bill for some raw materials, such as oil, that are priced in dollars.

But European jobs could suffer at companies that have watched their revenues from U.S. sales shrink.

Already, Rolls-Royce has announced intends to transfer at least part of its manufacturing operation in Liverpool, England to its plant in Mount Vernon, Ohio. Company officials have pointed to the strength of the pound against the dollar as the impetus for the move.

France's Airbus, whose main rival is U.S.-based Boeing, has opened operations in cities such as Wichita, Kan., and Mobile, Ala.