The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

Car companies face currency quandary

VW: faces strategic challenges in
pushing sales and cutting costs,
but currency risk is often overlooked

At the end of February, Standard & Poor's revised its outlook on Volkswagen's single-A rating from stable to negative, owing to the car company's lower than expected 2003 earnings. VW's operating profits were down 48% to e2.5 billion in 2003, according to its headline numbers published last month. S&P said the sales performance of its new Golf, retaining its profitability in Europe and its ability to carry out planned annual cost cutting of e1 billion were the company's key challenges in 2004.

Yet some analysts think that S&P should be focusing more on VW's currency risks, which reduced operating profit by e1.2 billion in the first three quarters of 2003. When it formally publishes its full-year results in March, the currency hit to VW's balance sheet, particularly the euro/dollar rate, is likely to account for half of its fall in operating profit. The problem is not going away in 2004.

Traditionally, Europe's biggest carmaker hasn't hedged a lot of its dollar currency exposure, despite the fact that it has a strong sales base in the US in dollars yet no manufacturing base there and most of the cars it sells in the US are produced in Europe.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree