The SIBS Case Centre is sponsored by McKinney & Company. BMW Foreign Exchange Risk Management “Currency is much more volatile than it ever was. We’ve seen dramatic shifts between the Euro and the dollar in recent years. The only real solution here is to manufacture and buy components in the currencies where we sell cars. ” Norte Reiterate, CEO of BMW BMW Legend etc BMW, the world-famous auto and motorcycle manufacturer, was founded in Munich in 1916 as “Bayberries Beleaguered GAG” (Bavarian Aircraft Works). The company concentrated initially on the development and production of ere engines.
Augustan Otto, one of Bum’s founders, was son of four-stroke internal combustion engine inventor Nikolas August Otto. In 191 9, riding on an aircraft powered by an inline six-cylinder engine Type IV, test pilot Franz Zone Dimmer set an altitude record of 9, 760 meters. Since then twenty-nine world aviation records have been set by BMW. The blue and white BMW logo symbolizes the rotating propeller, reflecting the early age of the BMW Group. After the end of World War I in 1918, BMW was forced to cease aircraft engine reduction by the terms of the Versailles Armistice Treaty.
The company subsequently shifted to motorcycle and automobile production. Bum’s first successful motorcycle “ROR” went into production in 1923. Five years later, BMW bought the Sciences automobile plant and began to produce automobiles. In 1 933, BMW introduced the 303 saloon, the first automobile equipped with inline six-cylinder engine and twin-kidney shaped radiator grilles. From then on, BMW introduced a series of classic automobiles and gradually developed into a world-renowned luxury carmaker.
Persistence on premium branding strategy has been the basis for Bum’s success. In 1994, BMW acquired Rover Group, which contains the brands Rover, Land Rover, MINI and MGM. Four years later, BMW bought Rolls-Royce, Britain’s legendary manufacturer of hand-burnished luxury automobiles. At present the BMW Group owns the BMW, MINI and Rolls-Royce brands. The BMW Group is the only automobile and motorcycle manufacturer worldwide to operate with all its brands exclusively in the premium segments, from small cars to the absolute top segment. [email protected] 2 In the Forbes list of “World Top Platinum Luxury Brand” released in 201 0, BMW ranked first with a brand value Of $19. 9 billion. Its major competitors, Mercedes-Benz ($18. 8 billion) and Propose ($4. 8 billion), ranked third and tenth respectively. Foreign Exchange Risk Management Strategy BMW produces the vast majority of its vehicles in Germany and exports a large quantity of them to the rest of the world. More than two thirds of Bum’s sales revenue comes outside Germany. BMW cannot completely edge itself against currency fluctuations around the world.
In 1 985, in order to resolve the issue of huge U. S. Trade deficit, the governments of France, West Germany, Japan, the United States, and the United Kingdom signed the Plaza Accord to depreciate the U. S. Dollar in relation to the Japanese yen and German mark by intervening in currency markets. Thereafter German mark and Japanese yen appreciated substantially against the U. S. Dollar. The exchange rate value of German mark versus US. Dollar appreciated over 70% during the period from 1985 to 1988. NO
The persistent appreciation of German mark put Germany’s exporters in a tight spot. To bear the exchange rate risks by oneself or to pass through the risks to consumers? At that time, Bum’s peer Propose chose the latter, by raising retail prices in the U. S. Market. As a result, sales volume plunged from sass’s 30,000 units to sass’s 4,500 units. Propose was nearly losing the U. S. Market. Dry. Wendell Widening, the newly appointed CEO of Propose, took drastic reforms by cutting costs on the one hand and introducing Toast’s Lean production on the other hand.