All About Cars

Many European car and car parts makers have shrugged off the dollar’s fall against the euro because they have hedged against the risk or avoided it altogether by operating plants in the United States.

Some of them like Ferrari and Lamborghini sell their vehicles at such high prices that the impact on their results is minimal. They also benefit from the hedging done by their parent companies: Fiat and Volkswagen, respectively.

Others like France’s Renault and PSA Peugeot do not sell their cars and vans in the United States so the dollar’s behavior is of no consequence to them.

Their vulnerability would lie in eastern Europe and Latin America where they do business in many different currencies.

The few that export to that market are seen as the most exposed to the dollar’s weakness, such as BMW, the biggest premium car maker in the world.

“It is a big issue for BMW,” Maria Bissinger, a Standard & Poor’s corporate ratings director, told the Reuters Autos Summit in Frankfurt. “They face headwinds.”

Fears about the state of the U.S. economy has sent the dollar to record lows against the euro at about $1.4850 per euro.

The Federal Reserve has forecast growth in the world’s biggest economy slowing next year to between 1.8 and 2.5 percent, a sharply lower estimate than those made earlier this year.

The lower forecast comes after defaults on U.S. mortgages hit banks hard and raised the cost of borrowing.

Bissinger said Standard & Poor’s economists expected the dollar to rise above 1.50 against the euro in early 2008.

BMW has said the impact of the dollar on its results would be less this year than in 2006 when it took a hit of 666 million euros. It has also said it was looking at ways to better hedge its foreign exchange exposure.

“They believe in partial hedging and not 100 percent,” said Bissinger. “There are some open gaps in (their) hedging.”

On the other hand, Volkswagen learned its lesson in 2004 and 2005 when it lost 2.4 billion euros from adverse currency effects — and that did not include the additional losses at its Chinese joint ventures due to the dollar-linked Renminbi.

Foreign exchange headwinds only exacted a 300 million euro hit on its operating profit in the first nine months of 2007.

“It has improved its hedging,” Bissinger said. “Much is the same for Daimler”.

Andreas Renschler, a Daimler board member and head of the truck division who also took part in the Summit, said the dollar’s impact on the division was “limited” because it built its trucks in the United States, its biggest single market.

“It is all local. So the export issue with the exchange rate is not an issue,” he said. “The only impact we have is on revenues when you convert into euros.”

The same went for Valeo, which has 14 plants in the North America making compressors, electrical systems and other parts for auto manufacturers.

“It is not a problem in terms of operations,” Chief Executive Thierry Morin told the Summit. “We have lost 7 percent of sales in the last four years against the dollar (after converting into euros).

German wire and cable supplier Leoni also does not have a problem with the exchange rate because its plants like the one in Detroit that makes wiring harnesses did business in dollars, not euros.

“The U.S. dollar situation is not a threat to us,” its chief executive, Klaus Probst, told the Summit. “We have a natural hedge.”

The biggest risk that Leoni faced was the hit that some of its customers could take from the dollar’s weakness, he said.

Automakers racing to find affordable ways to make cars environmentally sustainable are zeroing in on polluted, fuel-scarce China to help them take clean car concepts from the laboratory to the market.

Mounting alarm over global warming and soaring crude oil prices was evident among automakers showcasing their latest green technologies at the Challenge Bibendum, held this week in Shanghai’s “Auto City” — an industrial zone to the west of the city.

At the 2004 Shanghai Bibendum, named after the puffy mascot of French tire-making sponsor Michelin, the talk was all of phasing in various technologies over decades.

Today, with crude oil prices encroaching on $100 a barrel, it’s of moving ahead with all technologies as soon as possible, especially in China, where environmental crises and fuel shortages resulting from its embrace of the automobile make it a microcosm of global trends.

“We used to talk about timeframes of short-mid-long-term. Now all of them are in play to figure out what are the different options for the different markets,” said Elizabeth Lowery, vice president for environment, energy and safety policy at General Motors Corp.

With its huge market and high velocity growth, China is “critical” to the effort to reduce dependence on petroleum and carbon dioxide emissions, Lowery said in an interview.

In both oil consumption and vehicle sales, China ranks second globally after the United States and is fast catching up. Vehicle sales jumped 25 percent last year to 7.2 million units, including trucks and buses.

Spurred by the country’s growing dependence on oil imports, the government targeted cleaner cars as a priority in February 2006 as part of a broad range of efforts to reduce carbon emissions and improve energy efficiency.

It has promised grants and tax breaks to support industry efforts, and recently issued rigorous standards for makers of alternative fuel vehicles.

The urgent need for progress was evident outside the Bibendum venue, where a gray haze hung over the sleek concept cars whizzing around the parking lot.

Worldwide, automakers are investing billions of dollars to develop more eco-friendly vehicles to meet stricter standards on auto emissions and fuel efficiency, helped by recent advances in battery and fuel cell technology.

Late last month, GM announced plans for a $250 million alternative-fuel research center in Shanghai.

Both Toyota and Honda produce Hybrid vehicles, which are powered by electricity and gasoline, in China and GM has said it plans to start selling a gas-electric hybrid here next year.

The challenge remains making the technologies affordable, and that hinges on boosting production volumes to reduce manufacturing costs per vehicle. Automakers are looking to the double-digit growth in China and other developing markets such as India to help realize those economies of scale.

“What really counts is applying the right technology on volume vehicles,” said John Viera, director of sustainable business strategies at Ford Motor Co.

Herbert Kohler, chief environmental officer and vice president at Germany’s Daimler AG, echoed that sentiment. “The number one issue is commercialization: To get the cost down.”

Viera urged that Beijing promote clean cars, both hybrids and others, with tax breaks and other policy incentives.

“When we have government support, we shall launch these products for Chinese consumers,” he said. “We need governments to be our partners.”

So far, progress toward commercialization has illustrated the lack of a one-size-fits-all solution. For some countries, such as major biofuel producer Brazil, ethanol is a viable option. Others are increasingly relying on Hybrids and other advances in traditional fuels while they experiment with fuel cell technology.

China has sought to curb an expansion in biofuel production to help protect food supplies and control prices. Thus automakers such as Ford, Daimler and Volkswagen AG are focusing on diesel, which can be processed from a variety of resources, including coal and natural gas.

“Our aim is to make diesel as clean as gas engines and gas engines as efficient as diesel,” Kohler said.

Meanwhile, tire makers and chemicals manufacturers are developing new materials to reduce vehicle weight, wind resistance and ground friction — factors that can account for about a third of the carbon emissions that cause global warming.

Even road contractors have a crucial role to play in reducing pollution, recycling materials and using paving that can maximize efficiency, noted Jean Beauverd, chairman of the International Road Federation and president of road building company Colas Switzerland.

“There is a general agreement that business as usual is not an option,” Beauvert said.