Many European car and car parts makers have shrugged off the dollar’s fall against the euro because they have hedged against the risk or avoided it altogether by operating plants in the United States.
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Some like Ferrari and Lamborghini sell their vehicles at such high prices that the impact on their results is minimal, Reuters noted. They also benefit from the hedging done by parent companies: Fiat and Volkswagen, respectively.
Others like Renault and PSA Peugeot-Citroen no longer sell in the United States so the dollar’s behaviour is of no consequence to them.
Reuters said their vulnerability would lie in eastern Europe and Latin America where they do business in many different currencies.
The few that export to the US are seen as the most exposed to the dollar’s weakness, such as BMW, the world’s biggest premium car maker.
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By GlobalData“It is a big issue for BMW,” Maria Bissinger, a Standard & Poor’s corporate ratings director, told the Reuters Autos Summit in Frankfurt. “They face headwinds.”
Fears about the state of the US economy have sent the dollar to record lows against the euro at about $1.4850 per euro.
The UK’s Daily Telegraph newspaper said on Wednesday that this was also causing other exporters concern and that there had been suggestions of political intervention to reverse the euro-dollar disparity.
According to Reuters, the Federal Reserve has forecast growth in the US, the world’s biggest economy, slowing next year to between 1.8% and 2.5%, a sharply lower estimate than those made earlier this year.
The lower forecast comes after defaults on US mortgages hit banks hard and raised the cost of borrowing.
Bissinger said Standard & Poor’s economists expected the dollar to rise above 1.50 against the euro in early 2008.
BMW has said the impact of the dollar on its results would be less this year than in 2006 when it took a hit of EUR666m. It has also said it was looking at ways to better hedge its foreign exchange exposure.
“They believe in partial hedging and not 100%,” said Bissinger. “There are some open gaps in (their) hedging.”
On the other hand, Volkswagen learned its lesson in 2004 and 2005 when it lost EUR2.4bn from adverse currency effects – and that did not include the additional losses at its Chinese joint ventures due to the dollar-linked renminbi.
Foreign exchange headwinds only exacted a EUR300m hit on its operating profit in the first nine months of 2007.
“It has improved its hedging,” Bissinger said. “Much is the same for Daimler.”
Andreas Renschler, a Daimler board member and head of the truck division who also took part in the summit, said the dollar’s impact on the division was “limited” because it built its trucks in the United States, its biggest single market.
“It is all local. So the export issue with the exchange rate is not an issue,” he said. “The only impact we have is on revenues when you convert into euros.”
The same went for Valeo which has 14 plants in North America.
“It is not a problem in terms of operations,” chief executive Thierry Morin told the summit. “We have lost 7% of sales in the last four years against the dollar (after converting into euros).
German wire and cable supplier Leoni also does not have a problem with the exchange rate because its plants like the one in Detroit that makes wiring harnesses did business in dollars, not euros.
“The US dollar situation is not a threat to us,” its chief executive, Klaus Probst, told the summit. “We have a natural hedge.”
The biggest risk that Leoni faced was the hit that some of its customers could take from the dollar’s weakness, he said.
Porsche, for example, could see its sales fall in the United States, he said.
