Germany’s Bayerische Motoren Werke AG is competing head to head with the American dollar – with the green money hurting their profit growth. Automotive analysts estimated for BMW to earn a 125 million Euros more than their actual 765 million third-quarter pretax profit. Analysts said that this is due to the dollar’s weak value reducing the U.S. revenue and research and development costs are increased by 20 percent.
BMW is the world’s largest premium car maker. Germany makes almost two thirds (33 percent) of BMW vehicles and America is responsible for the one-fourth (25 percent) of total BMW sales. The U.S. is considered as BMW’s largest market and sadly, its currency is continuously depreciating against the Euro. Prices of steel are increasing and the Munich-based automaker has already made huge investments for their new models. Thanks to the new Mini and the X5 SUV (with quality parts like BMW radiator hose), BMW AG’s car sales were up by 13 percent.
“The market is disappointed over margin development,'' said Juergen Meyer, who helps manage 1.3 billion euros, including BMW shares, at SEB Asset Management in Frankfurt. “When you look at the value of the dollar since the beginning of the year it's not surprising what has happened.''
The German premium auto industry scenario is this: BMW’s market shares decreased by 1.49 euros to 43.31 euros, there was a 3.3 percent fall. Daimler AG’s renaming was a good idea that the world’s second largest premium car maker gained a 59 percent in stocks, leaving behind BMW with only 0.5 percent growth. Audi premium brand owner, Volkswagen AG posed an immense 119 percent increase.
BMW’s Chief Executive Officer, Norbert Reithofer emphasized that he is expecting to report a full year pre-tax profit to be higher than their 2006 record of 3.75 billion euros. To meet the CEO’s aim, the company must earn 1.07 billion euros for the fourth quarter, which is 20 percent more than the average of the past three quarters.
For the third quarter, the dollar fell 5.1 percent against the Euro. Yesterday, the euro is exchanged for $1.4570 before trading at $1.4553 as of 12:25 pm in New York. Low dollar value also reduces the value of U.S. sales when they are converted to the European money.
There was a noted 20 percent increase in the company’s expenses in research and development totaling to 723 million euros. BMW is making huge investments for the development of new fuel-efficient engines.
“The margins are about as bad as we've seen,” said Georg Stuerzer, an analyst at Unicredit in Munich with a “hold” recommendation on BMW shares. “The X5 is certainly making a positive contribution, but the fact that sales are rising much faster than profit is disappointing.”
