but wouldnt BMW hedge against such currency fluctuations? i had a friend who worked at GM treasury, and his time was spent devising elaborate hedges against currency movements. because GM sells/makes cars in so many markets, they were most concerned with reducing GM's exposure to the downside of the currency fluctuations.
that being said, i realize that no one can eliminate risk completely, but my impession is that you can hedge against a certain amount of it.
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Originally Posted by DSXMachina
This is an interesting question because the answer is positive and negative. If a product is produced in the USA from USA sourced parts, and sold in the USA, then margins will remain the same even if the dollar is weakening.
The problem occurs when the profit dollars are transferred to Germany. Let's say BMW makes $10,000 on an X5. When a dollar was equal to the euro then BMW made 10k euros. But when the euro is worth $1.50 then BMW only makes 6667 euros. In effect, their profit has dropped 33%! Same vehicle, same assembly plant, same parts, a lot less profit.
Now imagine what happens if we get a little more realistic. The 335 is made in Germany. At one time they were able to get 40K euros for their $40K sales price. Now when they turn those same $40K into euros they only get 28K euros! Where do you suppose the profit went? Up in smoke.
It has NOTHING whatsoever to do with supply and demand at this point.
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