Euro's woes mixed blessing for carmakers

4 Mar 2010, 4:08 am   -   Source: Reuters
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GENEVA (Reuters) - Global carmakers exporting from the euro zone ought to benefit from newfound weakness in the currency but auto executives at the Geneva Autoshow agree the 10-percent drop over the last three months is hard to handle.

GENEVA (Reuters) - Global carmakers exporting from the euro zone ought to benefit from newfound weakness in the currency but auto executives at the Geneva Autoshow agree the 10-percent drop over the last three months is hard to handle.

Luxury car marque BMW says it was wrong-footed by the scale of the realignment between the dollar and the euro, which has plunged to around $1.35 from $1.50 at the beginning of last December amid fears Greece might default on its debt.

Daimler , maker of Mercedes cars, said there was a downside to learning to live with a soft currency,

And Volvo is worried about the unpredictable and violent swings in currency markets.

"It's been the most volatile ride I've ever seen on exchange rates," Volvo Car Chief Executive Stephen Odell told Reuters.

Volvo builds its XC90 sport utility vehicle in Gothenburg under a Swedish crown cost base, makes the S60 in eurozone member Belgium and assembles cars in China.

Its components are bought in all three currencies and more while the brand sold about 335,000 vehicles in 100 different countries last year -- illustrating why small manufacturers find managing currency risk so difficult.

Volvo says it faces an extra dimension because it is in the process of being sold by parent Ford to Zhejiang Geely Holdings of China.

"I'm legally not able to talk to Geely about any hedging strategy in the future, because Ford are the owners," Odell said.

SUDDEN FALL

Concerns that sovereign debt risk would spread from Greece to other fiscally weak eurozone economies have triggered a sudden and largely unanticipated drop in the euro.

"We actually expected that the dollar would weaken again, and we prepared ourselves for 2010 using financial hedges but it came out differently due to Greece," BMW Chief Executive Norbert Reithofer told reporters in Geneva.

He declined to comment on the extent to which he had locked in rates to secure his revenue exposure, but Reithofer said there was still room for BMW to take advantage of a lower euro.

"Would I have believed that the dollar would be at $1.35 three months ago? No, I would have seen it more $1.50," he

Currency risk is a vital ingredient in the European auto industry, which employs roughly one third of all workers in the European manufacturing sector and represents some 43 billion euros ($58.7 billion) of net trade contribution, according to Brussels-based industry group ACEA.

Daimler CEO Dieter Zetsche said the weaker single-currency was at first glance an opportunity for someone exporting a lot, but that was too superficial an analysis.

"I do believe that in the long run, industries and economies which had strong currencies were typically more successful - ultimately because it's a good training program and doesn't allow you to become lazy or complacent," he said.

"So while we would be benefiting short term by some pressure on the euro, we are not wishing for that," Zetsche explained.

Carlos Ghosn, the CEO of Renault-Nissan <7201.T>, said he was not "fussing" about the euro's depreciation since the single currency was finally returning to normal levels.

"Every time you have something driving uncertainty up it's not good for car sales," he said. But he quickly added: "I don't see Armageddon coming."

(Additional reporting by David Bailey; Editing by David Cowell)

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