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Last Updated: Thursday, 20 March 2008, 00:03 GMT
BMW boss battles falling dollar
By Tristana Moore
BBC News, Munich, Germany

BMW World in Munich
BMW World was officially opened in October 2007

BMW's glitzy new showroom, BMW World, dominates the Munich skyline.

Walking into the futuristic building, with its steel roof, everything is geared towards promoting the BMW brand.

There are restaurants, a café and a shop selling BMW merchandise.

Since the luxury showroom opened its doors last autumn, more than a million visitors have flocked here.

BMW chose the showroom as the venue for the company's annual press conference.

Export markets

The world's biggest premium carmaker sold a record 1.5 million vehicles in 2007, and says its on course to meet its target of selling 1.8 million cars in 2012, confident that sales of its BMW, Mini and Rolls-Royce brands will continue growing.

The company's profit before tax was 3.9bn euros ($6.1bn; £3.0bn) in 2007, 6.1% down on the previous year, but still high.

Managers told reporters that despite the weak dollar and high commodity prices, the carmaker is hoping to increase its earnings this year.

But there is one big cloud on the horizon.

The BMW group is battling to limit the fall-out from the weakening dollar.

In an interview with the BBC, BMW's chief executive, Norbert Reithofer, confirmed that the carmaker would be increasing production at its plant in the US.

"If I look into the future, we will increase our production capacities in the US from 150,000 units to 240,000 units, the car plant in the US helps us on the natural hedging side, it can reduce your total exposure," Norbert Reithofer said.

The United States is BMW's biggest single market and the group has a big plant in Spartanburg, South Carolina.

Four out of five BMW Group cars are exported, so the company is exposed to exchange rate fluctuations.

Tough climate

The carmaker knows that it is operating in a tough economic climate.

"During the first two months of this year, in January and February, we had a challenge in the US," said the company's chief executive.

Norbert Reithofer, CEO, BMW
We have to buy more goods, that means more components for our cars, in the US
Norbert Reithofer, chief executive, BMW

"We were able to compensate for the losses in car volume in the US elsewhere in the world."

"We have a very good market situation in China, Germany is going up, and we had good results in the UK.

"We are a global player and we are not just dependent on one market," he said.

Currency risk

"From a financial hedging point of view, we are in a good position this year," Mr Reithofer said, smiling broadly.

"It's not just one currency. We have three important markets, Japan, the UK and the United States," Mr Reithofer explained.

BMW said that it has hedged itself completely this year with "all of the main currencies".

However, currency fluctuations are taking their toll.

They cost BMW 517m euros last year, while raw material price increases cost the group 288m euros.

But that was offset by higher sales and improvements in efficiency.

Cost cutting

Faced with tough competition from rivals, the German group is bent on cost-cutting.

A BMW car at the Detroit Motor Show
BMW believes luxury cars are not the first-hit in a slowdown

"Our major production cost is materials, which amounts to 26bn euros," Mr Reithofer said.

"We have to have discussions with our supplier networks about prices and we have to start an initiative to find out if we can we reduce the costs of our supplier companies and cut logistics costs."

"We have to buy more goods, that means more components for our cars, in the US. For our car plants in the US and Europe."

Job cuts

The premium carmaker has announced that it is planning to axe more than 8,000 jobs, a decision that provoked outrage in Germany.

And it is worried that a slowdown in the US market could affect its sales.

"A slowdown of the car market in the US in 2008 could affect the whole car market."

"Look at our customers, we are a premium car manufacturer and that helps," Mr Reithofer said.

"Over the last 10 years, during a recession, first volume car manufacturers are affected, then later it's premium carmakers."

"Will it affect us? We don't know, it depends on how deep the crisis will be," he added, sounding an ominous tone.

BMW chief executive talks to the BBC

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