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Dollar's Decline Starts to Buoy Some U.S. Firms : Cheaper American-Built TVs Among Beneficiaries of a More Expensive Yen

February 22, 1987|JONATHAN PETERSON | Times Staff Writer

Item: In early January, Matsushita Electric Industrial Co. announces that it will no longer supply General Electric with color television sets. Matsushita blames the strong Japanese yen and weak U.S. dollar for the fact that the two companies can't come to terms.

Item: In mid-February, GE responds that it has found a source much closer to home for the 500,000 sets it needs--the plant run by its own RCA subsidiary in Bloomington, Ind. Production will begin Monday. "We're going to take a shot at making it a very cost-efficient plant," Frank V. McCann, a GE spokesman, said.

Score one for the falling dollar.

The greenback's two-year slide has yet to reverse a U.S. trade deficit with the rest of the world estimated at a towering $170 billion for 1986. Indeed, there is a growing awareness that the weaker dollar--which tends to make American goods cheaper overseas and foreign goods more expensive here--is not a cure-all for U.S. industries injured by competition from abroad.

But there are new signs that the dollar's drop relative to certain key currencies is beginning to have a favorable effect on beleaguered American manufacturers. Last Thursday, the government reported a moderate improvement in the U.S. trade balance for the fourth quarter of 1986, with exports growing 13.6%. In addition, industrial production and factory use have both risen in recent months.

"The cumulative drop of the dollar since March, 1985, has improved the attractiveness of U.S. goods in world export markets," said John Hagens, an economist with Chase Econometrics, adding that "for the last six months, exports have been extremely strong."

But the lower dollar's effect can be hard to predict, especially for companies that do business throughout the world. The television sets that Matsushita built for GE, for example, were not made in Japan, but in Vancouver, Wash.

Despite the U.S. manufacturing location, however, yen-related price pressures on Japanese parts and other expenses caused Matsushita's arrangement with GE to break down.

Importance of Exchange Rates

For such an export-driven industry as Japan's consumer electronics, relying on exchange rates is "a way of life" said David Lachenbruch, a longtime industry observer and editorial director of the trade magazine Television Digest.

At Fluor Corp., an engineering, construction and natural resources concern based in Orange County, the results of the dollar's drop have been uneven.

Chairman David S. Tappan Jr. said it has become more economical to employ U.S. engineers overseas and that some mineral prices, such as those of lead and zinc, are more competitive. But, he cautioned: "When we talk about the dollar falling, it is falling relative to the yen and (West German) deutsche mark. It is not falling relative to (all) other currencies."

According to the Morgan Guaranty Trust, as of Thursday the dollar had dropped 31% against a collection of 15 currencies since its peak in February, 1985. But when currencies are considered individually, the variations become apparent, with little change in the dollar relative to the money of South Korea, Taiwan and some other key trading partners.

Nonetheless, Fluor's current attempt to win a power plant modification job in Michigan provides striking evidence that the lower dollar can give U.S. companies an edge. In putting together its proposal to oversee the project, Fluor sought a supplier for more than $150 million worth of turbines--big pieces of equipment used in generating power. It invited several American companies to bid, as well as manufacturers from Japan, Britain, West Germany and Switzerland.

Shortly after the invitation, however, the Japanese, Germans and British all dropped out, with the Japanese stating that the new yen-dollar relationship had hurt their ability to compete. "It's very likely that an American company will have the lowest bid," Rick Maslin, a Fluor spokesman, observed.

The lower dollar also has helped Hewlett-Packard Corp., where international orders for the quarter ending Jan. 31 were up 24% from a year ago. Treasurer George F. Newman said the high-tech firm's prices had dropped 40% in Japan and in parts of Europe during the last 20 months. But he pointed out that prices had risen a similar amount during the dollar's surge a few years ago: "So we're really back to square one."

Eastman Kodak Chairman Colby H. Chandler, citing a 1986 worldwide sales increase of 9%, said last week that the dollar's drop has meant that "the translated value of Kodak sales increased, and the company's market positions in Europe and Japan improved."

The Rochester, N.Y.-based company figures that the dollar's realignment last year resulted in a net earnings boost that was worth 70 cents per share. That compares to a cumulative drop of $2.57 between 1981 and 1985.

Wants Still Greater Drop

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