BMW Research Project - Please Help !

AzNMpower32 · #1 11-18-2009, 01:33 PM

The ever more stringent European emissions standards are a challenge for all carmakers, not just BMW. Basically, a lot of the difficulties that apply to BMW also apply to the automotive industry as a whole.

In regards to currencies, automakers will hedge against a currency years in advance. Therefore although the € has gained strength, essentially what the German and other EU carmakers did was lock in, or hedge the currency years in advance (usually 3-5yrs I think) so that fluctuations will not significantly erode the bottom line. That said, North America has been an unprofitable market for BMW in the last few years. That's reflected in the shift of vehicle allocations to other markets such as the Middle East and Asia, where there has been continued growth in spite of the recession. Once again, this statement also applies to other EU makers as well.

JCL · #2 11-19-2009, 01:30 AM

Quote:

Originally Posted by AzNMpower32

In regards to currencies, automakers will hedge against a currency years in advance. Therefore although the € has gained strength, essentially what the German and other EU carmakers did was lock in, or hedge the currency years in advance (usually 3-5yrs I think) so that fluctuations will not significantly erode the bottom line.

Hedging works when you know the amount to hedge. Changes in volume from that expected will erode the effectiveness of the hedging strategy. Given that vehicles sales have been significantly impacted during the current recession, those hedging strategies can easily turn into liabilities.

Tleong · #3 11-19-2009, 08:19 PM

Quote:

Originally Posted by AzNMpower32

The ever more stringent European emissions standards are a challenge for all carmakers, not just BMW. Basically, a lot of the difficulties that apply to BMW also apply to the automotive industry as a whole.

In regards to currencies, automakers will hedge against a currency years in advance. Therefore although the € has gained strength, essentially what the German and other EU carmakers did was lock in, or hedge the currency years in advance (usually 3-5yrs I think) so that fluctuations will not significantly erode the bottom line. That said, North America has been an unprofitable market for BMW in the last few years. That's reflected in the shift of vehicle allocations to other markets such as the Middle East and Asia, where there has been continued growth in spite of the recession. Once again, this statement also applies to other EU makers as well.

I was told in my International Business class that locking in currency rates from a bank is usually only for a 90-180 day period...

AzNMpower32 · #4 11-19-2009, 10:11 PM

Quote:

Originally Posted by Tleong

I was told in my International Business class that locking in currency rates from a bank is usually only for a 90-180 day period...

Not true. Or else BMW would be jacking up prices every 3 months.

motordavid · #5 11-19-2009, 10:40 PM

Quote:

Originally Posted by Tleong

I was told in my International Business class that locking in currency rates from a bank is usually only for a 90-180 day period...

Dunno...slept through that part of Money&Banking back in the mid 60s,
though currencies can and are, often "locked" via hedging another
currency or basket of currencies, and often "both ways"...

And, I would bet dinner that BMW hedges currencies. It is almost a must
for international companies like BMW. They are wrestling with Euros vs
USD, (for the most part), along with several other country sales, and
probably use hedging via Current Rate Method, as opposed to temporal method, in accounting.

Even at the lil' company I spent the last 11 years with, we hedged our fannies off, as we had mfg'ng sites
in several countries, with "local" sales, and "companies" set up, accounting-wise, in those countries, around the
world. BMW, et al, are no different; just a lot bigger than we were.

There is risk in hedging currencies, accounting-wise, balance sheet
noise, credit rating and ratios, and of course "translation risk" in
bringing those diverse numbers, from several currency "sources",
together in to a balance sheet that passes GAAP or the euro version
of GAAP. Off the soapbox...but, I bet currency fluctuation keeps
the CFO and his minions, awake some nights, even with hedging.

Tleong · #6 11-20-2009, 12:32 AM

Quote:

Originally Posted by motordavid

Dunno...slept through that part of Money&Banking back in the mid 60s,
though currencies can and are, often "locked" via hedging another
currency or basket of currencies, and often "both ways"...

And, I would bet dinner that BMW hedges currencies. It is almost a must
for international companies like BMW. They are wrestling with Euros vs
USD, (for the most part), along with several other country sales, and
probably use hedging via Current Rate Method, as opposed to temporal method, in accounting.

Even at the lil' company I spent the last 11 years with, we hedged our fannies off, as we had mfg'ng sites
in several countries, with "local" sales, and "companies" set up, accounting-wise, in those countries, around the
world. BMW, et al, are no different; just a lot bigger than we were.

There is risk in hedging currencies, accounting-wise, balance sheet
noise, credit rating and ratios, and of course "translation risk" in
bringing those diverse numbers, from several currency "sources",
together in to a balance sheet that passes GAAP or the euro version
of GAAP. Off the soapbox...but, I bet currency fluctuation keeps
the CFO and his minions, awake some nights, even with hedging.

There will always be some risk when you hedge your position, especially a position as large as BMW's portfolio. As far as accounting practices go, it wouldn't make a significant difference between GAAP and IFRS. Although it would be more efficient if it was one or the other, the cost is so miniscule when looking at BMW's numbers.

As far as locking in the interest rate, I think it's something I will look into.