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BMW motors ahead despite strong euro

German luxury car maker BMW said on Tuesday it was aiming for higher profits this year despite the strong euro and weak US economy, which could crimp export earnings.

Published: 18 March 2008 11:35 CET

The group “again faces some major challenges in the current year as a result of the strong euro, a weaker US economy and continuing high raw material prices,” the company said in a statement.

Pre-tax profit should nonetheless grow, excluding exceptional items, and sales were expected to exceed the record 2007 level of 1.5 million vehicles, chief executive Norbert Reithofer told a press conference.

Last week, BMW announced that it had met its 2007 targets, with net profit of €3.13 billion, a sharp gain that was boosted by German tax reforms. Pre-tax profit however was down 6.1 percent to €3.87 billion after the 2006 figure got an exceptional boost of €372 million from the settlement of a convertible bond operation backed by shares in British jet engine maker Rolls Royce.

BMW has suffered from the euro’s rise to record highs against the dollar and it booked a foreign exchange charge of €517 million last year following one of €666 million in 2006. It is said to be the most exposed auto manufacturer to currency fluctuations because the United States is its biggest export market.

“BMW is the most successful European (auto) manufacturer in the American market,” Reithover said Tuesday. “That is why the dollar’s persistent weakness hits us harder than competitors.”

On Tuesday, the company also announced a new share buy-back programme that could cover as much as 10 percent of its equity. It must be approved by a general assembly of shareholders.

Like German rivals Daimler and Volkswagen, BMW has made the development of cleaner, environmentally friendly cars a top priority.

“Electric motors are an option for us,” Reithofer said. “We will make a decision this year.”

The company must offer by 2012 a vehicle that emits no carbon dioxide to maintain its official rating as a “large vehicle manufacturer” in the US market.

How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year.

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’, Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn.

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment?

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024 about 1 percent below the estimated structural level.

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending?

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”. The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”.

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025.

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023.

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write.

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers.

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.”

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