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Dollar's rise helps Germans

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Dollar's rise helps Germans

Appreciation indirectly boosts value of their booming luxury car sales in China

Christine Tierney / The Detroit News

With the dollar up nearly 10 percent against the euro, Germany's luxury carmakers should be toasting a big jump in profits on their American car sales.

But their Chinese business has proved to be even more lucrative.

That's because Germany's carmakers traditionally hedge their currency exposure in North America and Japan to buffer the impact of currency swings.

Similar to insurance, hedging protects exporters when currencies move in an unfavorable direction, but it also limits potential gains.

As a result, Daimler AG, the parent of Mercedes-Benz, as well as BMW AG, Volkswagen AG's Audi and other German carmakers, didn't register the full impact of the dollar's 8 percent rise against the euro in their U.S. operations.

But the dollar's appreciation helped them indirectly by boosting the value of their China sales.

China's currency, the renminbi, also called the yuan, was pegged for years to the dollar at a rate that China's trading partners considered undervalued -- keeping its exports to America cheaper. China has allowed the yuan to appreciate, but it still trades in a narrow range against the dollar -- and is up even more against the euro.

According to J.D. Power and Associates, luxury car sales in China have jumped more than 50 percent in the first eight months of 2010, with Audi leading the pack.

Mercedes-Benz sales in China through July totaled 74,070 vehicles, up 134 percent. BMW's sales in China more than doubled, too, as affluent Chinese consumers snapped up German brands.

"They're selling a lot more cars and they're selling them at an exchange rate that's 10 percent better," said John Lawson, a London-based analyst at Citi Investment Research & Analysis.

Citi estimates that the yuan's rise will contribute 450 million euros, or $585 million, to Volkswagen's pretax earnings in 2011.

For BMW and Daimler, which export a greater share of vehicles to China than VW, a big local producer, Citi estimates the positive impact on their 2011 pre-tax profits at more than $650 million each.

By comparison, the currency impact on their U.S. business ranges between $130 million and $230 million.

From The Detroit News: http://detnews.com/article/20100923/AUTO01/9230412/1148/auto01/Dollar-s-rise-helps-Germans#ixzz10MOsbHv1

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