Quote:
Originally Posted by chitown08
Yes, I agree. Sophistocated international corporations hedge their currency exposure by using futures, options, and swaps. Lets hope BMW finance is on the ball, because corporations continually fail to adequately hedge foreign exchange risk exposure (like VW).
As far as profit margin, yes grocery stores have low profit margin (Wal-Mart supposedly only ~2%), but grocery stores end up making decent return on equity because they are leveraged thru debt but more importantly, because of their high turnover. They cycle thru inventory so many times in one year that profit margin is magnified. (ROE = profit margin x asset turnover x leverage)
Automakers cannot increase turnover as significantly. That is why they rely on debt leverage(GM Ford?) and require certain profit margin. BMW has boasted almost 7% margins and cannot all the sudden drop their margin to 4% to be nice to the USA unless they plan on compensating via debt leverage (risky), or significantly increasing turnover (impossible). Or they don't mind their stock price dropping. 
In the end, weaker US$ dollar = more expensive imports, but less expensive exports. Since we are importing the M3, we suffer. Hedging typically only negates short term fluctuations (one yr). Eventually, you must increase the price of the M3 in the US.  |
hmm, I disagree but that is cool. I have said it before we all think we are getting a "better" car thus the need for an increase. Is the new M3 a better car then the previous most would say YES. If the exchange rates were equal do you think it is going to cost BMW that much more to make then the previous? Come on that is just now good business. We can debate the economics of it all day long and exchange rates, interest rates, economy of scale, but the fact will remain
- They will not over price their competitors.
- They will price the car to ensure increased sales.
- They will not under/over price their current line or the SPO line.
- BMW will profit off the car.
Not that I am biased or anything but in my opinion BMW is one of the smartest and best run companies in the world and they just happen to sell cars and oh ya ones that I like.
