BMW `Relaxed' About Euro's Gain, Volkswagen Expects Burden

Munich November 25, 2004; Bloomberg reported that BMW the world's second-largest luxury-car maker, said it's ``relaxed'' about the rise of the euro against the dollar. Volkswagen AG and DaimlerChrysler AG expect the increase to hamper results.

BMW hedged one third of its risk against a declining dollar next year, said Marc Hassinger, a company spokesman, reiterating comments made by Chief Financial Officer Stefan Krause earlier this month. The company also faces less risk because it produces some vehicles in the U.S. that are exported to Europe.

The dollar today fell to a record low of $1.32 per euro and dropped to a 4 1/2-year low against the yen. The slide probably will be extended, according to JPMorgan Chase & Co. and Merrill Lynch & Co. The U.S. is the largest national market for BMW, the third-largest for Volkswagen and the second largest for DaimlerChrysler's Mercedes division.

Volkswagen, Europe's largest carmaker, will post a loss this year in the U.S. and the rising euro ``doesn't make it easier'' to break even in the region, said spokesman Thomas Mickeleit. Volkswagen is aiming to limit the currency risk by exporting Brazilian-made Fox small cars to Europe and making the new Jetta model in Mexico. The Wolfsburg, Germany-based company has hedged about 40 percent of its risk for 2005.

DaimlerChrysler, the world's largest manufacturer of luxury cars, uses forward contracts as well as options to protect itself against currency fluctuations. A deteriorating average hedge rate ``puts pressure'' on results, the company said in an e-mailed statement. Next year, the Stuttgart, Germany-based company is ``partially'' protected against the depreciation of the dollar, the yen and the British pound.

Rate Agreements

BMW, based in Munich, uses forward exchange rate agreements which don't cost cash to lock in various exchange rates. The exchange rates are based on the gap between interest rates in different countries. The company has to sell currency at the agreed-upon price.

Forward-rate agreements enable companies to lock in a fixed price for a currency and differ from other hedging instruments. Options enable a company to buy dollars at an agreed-upon price and exercise the option only if it needs to. Derivatives include using puts and calls, which limit currency fluctuations to a range, as well as customized solutions that match the requirements of individual companies.

BMW's Krause said Sept. 23 he expects the dollar to strengthen to between $1.10 and $1.15 a euro, without providing a timeframe.