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      11-06-2007, 06:41 AM   #1
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BMW Profit Margin Falls below expectations-US$ v Euro

Lets see how this will affect the 1's pricing.

BMW Profit Growth Falls Short on Dollar; Shares Fall (Update1)

By Jeremy van Loon
Nov. 6 (Bloomberg) -- Bayerische Motoren Werke AG, the world's largest maker of luxury cars, reported an increase in pretax profit that was lower than predicted as a weaker dollar reduced the value of U.S. sales and costs rose.
Shares of BMW fell the most in three months after the Munich- based company posted third-quarter pretax profit of 765 million euros ($1.1 billion). Analysts surveyed by Bloomberg had expected 890 million euros. Net income rose 78 percent on a tax credit.
BMW gets about 25 percent of sales from the U.S., its No. 1 market, where the dollar is trading at an all-time low against the euro. The pretax margin was 5.5 percent, lower than the 6.9 percent expected, and the cost of sales rose 22 percent. Still, the company delivered 13 percent more cars, spurred by a new Mini and X5 sport-utility vehicle, and Chief Executive Officer Norbert Reithofer expects record full-year revenue and higher earnings.
``The X5 is certainly making a positive contribution, but the fact that sales are rising much faster than profit is disappointing,'' said Georg Stuerzer, an analyst at Unicredit in Munich with a ``hold'' recommendation on BMW shares. ``The margins are about as bad as we've seen.''
Shares of BMW fell 2.1 euros, or 4.8 percent, to 42.66 euros, the biggest drop since Aug. 1, and were trading at 42.85 euros as of 12:16 p.m. in Frankfurt. The stock has lost 1.5 percent this year, compared with a 58 percent gain at Daimler AG, the second-biggest maker of luxury cars, and a 119 percent advance for Volkswagen AG, owner of the Audi luxury brand.
Dollar Slump
The dollar fell 5.1 percent against the euro in the third quarter. It reached a low of $1.4531 today and traded at $1.4522 at 9:13 a.m. in London. That reduces the value of U.S. sales when translated into the European currency.
The cost of sales rose to 10.9 billion euros in the quarter on the exchange-rate changes and high raw-material expenses, the company said in a statement. Research and development costs rose 21 percent in the first nine months, to 2.2 billion euros.
``The market is disappointed over margin development,'' said Juergen Meyer, who helps manage 1.3 billion euros, including BMW shares, at SEB Asset Management in Frankfurt. ``When you look at the value of the dollar since the beginning of the year it's not surprising what has happened.''
Reithhofer said the U.S. is delivering ``acceptable'' earnings, though margins are not as wide as in 2002, when the dollar was at a high against the euro. The company aims to boost the proportion of parts bought in dollars to compensate for the currency's decline, he said on a conference call.
BMW's third-quarter net income exceeded the 620 million euros estimated by analysts, helped by a tax credit of 38 million euros versus a year-earlier payment of 268 million euros. Earnings were equal to 1.22 euros a share, up from 69 cents.
Sales Boost
Sales rose 19 percent to 13.8 billion euros, beating a 12.9 billion-euro estimate on increased production of the U.S.- built X5 and British Mini, both updated at the end of 2006.
``The margins are disappointing, especially given the good model mix and revenue growth,'' said Joerg de Vries-Hippen, who oversees about $60 billion in assets at Allianz Global Investors in Frankfurt. ``They should be higher for a premium carmaker.''
BMW said on Sept. 27 it would cut spending by 6 billion euros over five years and boost the dividend ``substantially.'' The move is part of Reithofer's strategy of improving profitability and maintaining a global sales lead over Daimler's Mercedes-Benz division and Audi. The CEO said today that there's no need for a more radical reorganization.
Long-Term Focus
``As always at BMW, our focus is on the mid and long term,'' he said. ``A company that has as much profit as we have is not a restructuring case.''
The CEO has a 2012 sales goal of 1.8 million cars and sport-utility vehicles, with deliveries exceeding 2 million units by 2020. BMW sold 1.37 million vehicles last year and expects to sell more than 1.4 million units this year.
Third-quarter deliveries rose to 364,564 cars and SUVs. BMW-brand sales gained 11 percent to 306,964, while the Mini added 17 percent to 57,315. BMW sold 285 Rolls-Royce Phantom super-luxury cars, up 52 percent. Fourth-quarter sales will be ``strong,'' reaching 400,000 units, Reithofer said today.
Audi has a 2015 goal of selling 1.5 million vehicles annually after adding 18 models. The Ingolstadt, Germany-based carmaker's total last year was 905,200 cars and SUVs. Daimler CEO Dieter Zetsche aims to raise Mercedes' earnings before interest and tax to 10 percent of sales by 2010.
Currency Hedging
Currency costs in 2007 will be less than last year's 666 million euros, BMW Chief Financial Officer Michael Ganal said on Oct. 29. The company is ``fully hedged'' against the main currencies for the year, Ganal said.
BMW boosted vehicle sales by two-thirds from 2000 to 2006, while the workforce grew by 14 percent. The company aims to raise productivity by 5 percent a year.
Model introductions in the past five years include the 1-Series compact hatchback model and the Mini. Pricing of both cars, excluding value-added tax, starts at less than 20,000 euros compared with 40,000 euros for the X5 SUV and 55,000 euros for the 7-Series sedan.
To contact the reporter on this story: Jeremy van Loon in Berlin at jvanloon@bloomberg.net .
Last Updated: November 6, 2007 06:19 EST
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      11-06-2007, 06:56 AM   #2
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SHIT! I do recall reading somewhere that they were prepared to take a loss in profits for the one. I guess in the long run they will be wetting a lot of apetites with this car and thus will ensure a SERIOUS increase of purchases in the future.
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      11-06-2007, 07:25 AM   #3
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Remember that they have to remain competitively priced as well in this market. Selling some at a reduced profit margin is better than selling none at a not-competitive price point.
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      11-06-2007, 08:07 AM   #4
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I can't wait to see how pissed off everyone is gonna be when the real pricing hits. The dollar is tanking like a bitch, and its getting ready to screw alot of things up, not just Euro car prices.

Just be sure to go out and vote today, like me...

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      11-06-2007, 08:37 AM   #5
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All the US has to do to succeed despite their tanking dollar is become a giant shopping mall for Canadians with their $1.07 dollar... :biggrin:

There was a recent newspaper feature indicating that BMW will honour a US warranty (the author checked with BMW Canada) so hope yet for a cross border buy.
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      11-06-2007, 11:55 AM   #6
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Quote:
Originally Posted by Devon K View Post
All the US has to do to succeed despite their tanking dollar is become a giant shopping mall for Canadians with their $1.07 dollar... :biggrin:

There was a recent newspaper feature indicating that BMW will honour a US warranty (the author checked with BMW Canada) so hope yet for a cross border buy.

Devon K;
Have you, or someone you know, gone through the process of importing a new vehicle into Canada?
I'm seriously considering it if the price delta between the Cdn 1er and the U.S. 1er is sufficiently significant to warrant it.:iono:
I'd prefer to buy from my local BMW dealer as they have always been good to me, but it's not worth a $10K premium..
My son lives in California and he can easily buy the 1er Cab I want, resell it to me and I can import it.
I'm retired so some invested time and paperwork won't discourage me from that scenario if and when the time comes.:wink:
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      11-06-2007, 01:30 PM   #7
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Quote:
Originally Posted by WolfsburgerMitFries View Post
I can't wait to see how pissed off everyone is gonna be when the real pricing hits. The dollar is tanking like a bitch, and its getting ready to screw alot of things up, not just Euro car prices.

Just be sure to go out and vote today, like me...

True, but auto sales in the US aren't doing too hot (ignoring crossovers and small SUVs) and are expected to decline even further next year due to problems with the credit crunch, mortgages, housing starts, etc. It seems to me that it would be hard even for the 1 to sell well if it's priced inappropriately.

source: http://online.wsj.com/mdc/public/pag...autosales.html
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      11-06-2007, 04:28 PM   #8
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Originally Posted by larryn View Post
Remember that they have to remain competitively priced as well in this market. Selling some at a reduced profit margin is better than selling none at a not-competitive price point.
Very true, especially considering that in the context of the market, BMW is still doing very, very well.

Quote:
Originally Posted by WolfsburgerMitFries View Post
Just be sure to go out and vote today, like me...

Vote Democrat because the price of your BMW is going up? HA!
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      11-06-2007, 04:41 PM   #9
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Quote:
Originally Posted by MPower View Post
Very true, especially considering that in the context of the market, BMW is still doing very, very well.

Vote Democrat because the price of your BMW is going up? HA!
voting straight democrat solves all the world's problems.
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      11-06-2007, 05:59 PM   #10
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I certainly wouldn't expect my vote to affect the value of our dollar much, that is for sure. But, it would be nice if somebody (insert party member here) put some more pressure on the Chinese to revalue their yen and put into place some more concrete IP laws. Maybe then our trade deficit with China wouldn't be so atrocious....

Regardless, I am not worried about the topic of this article affecting prices much, considering how important this vehicles is to BMW in the US. I would hope BMW is smart enough to see the mistake that Audi made with the A3 (especially the 3.2). I still think the 135i will start @ ~35K or less.
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      11-06-2007, 07:28 PM   #11
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Quote:
Originally Posted by WolfsburgerMitFries View Post
I can't wait to see how pissed off everyone is gonna be when the real pricing hits. The dollar is tanking like a bitch, and its getting ready to screw alot of things up, not just Euro car prices.

Just be sure to go out and vote today, like me...

Are the democrats going to turn back the clock and restrain the housing boom to avoid the current credit crisis so we don't have to lower rates and in turn tank the dollar even more?

I must have missed that platform...
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      11-06-2007, 07:45 PM   #12
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But, it would be nice if somebody (insert party member here) put some more pressure on the Chinese to revalue their yen and put into place some more concrete IP laws.
Bingo. And a weak dollar does have advantages to the US economy.
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      11-06-2007, 09:11 PM   #13
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Originally Posted by MPower View Post
Bingo. And a weak dollar does have advantages to the US economy.
Yeah - some more European car marque manufacturing plants here in the US would be nice.
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      11-06-2007, 09:17 PM   #14
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Talk all you want. I'm just looking for results.

http://www.reuters.com/article/newsO...43384520071107
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      11-06-2007, 11:22 PM   #15
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Originally Posted by WolfsburgerMitFries View Post
Talk all you want. I'm just looking for results.

http://www.reuters.com/article/newsO...43384520071107
Where the hell are you going with this? We are talking about the value of the dollar and you bring up how great democrats are? Take it somewhere else...

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Originally Posted by bradford View Post
Yeah - some more European car marque manufacturing plants here in the US would be nice.
A weak dollar certainly has its disadvantages but, as you say, it brings more manufacturing to the US which brings more jobs and increasing overall output. The most immediate problem is inflation and the threat of recession, but it is problem that a country like the US is much more equipped to handle, unlike, say, China.
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      11-07-2007, 08:44 AM   #16
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Gee, I must have made a wrong turn somewhere. I was looking for the 1 Addicts forum to talk about the 1er, but I seemed to have wandered into the politics forum instead. :iono:

Just my 2 cents: the country is looking for change, but so far I'm just hearing a lot about problems and not so much about solutions.

To get back on topic if you can point me in the direction of the politician that can put a 135i in my garage then that person will have my vote. :biggrin:
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      11-07-2007, 09:25 AM   #17
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Quote:
Originally Posted by Devon K View Post
All the US has to do to succeed despite their tanking dollar is become a giant shopping mall for Canadians with their $1.07 dollar... :biggrin:

There was a recent newspaper feature indicating that BMW will honour a US warranty (the author checked with BMW Canada) so hope yet for a cross border buy.
I recently sold a Z4 to some one in Canada. the warrenty does stand but he has to travel to a u.s dealer (not hard for him as he's close to the boarder) but there is no roadside assist as Canada has there own setup.
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      11-07-2007, 06:19 PM   #18
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I went to university in Canada and had no problem having my US-bought Audi serviced and maintained for free under the US warranty. I wouldn't expect BMW to be any different.
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      11-07-2007, 07:11 PM   #19
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Quote:
Originally Posted by MPower View Post
Where the hell are you going with this? We are talking about the value of the dollar and you bring up how great democrats are? Take it somewhere else...

A weak dollar certainly has its disadvantages but, as you say, it brings more manufacturing to the US which brings more jobs and increasing overall output. The most immediate problem is inflation and the threat of recession, but it is problem that a country like the US is much more equipped to handle, unlike, say, China.
If voting Democrat gets the United States out of Iraq, and stops our out-of-control war spending that is driving our dollar straight down, then yes, voting Democrat has a DIRECT effect on the value of the dollar.

If you don't understand the direct link between the current Republican war spending and monetary policy to the value of the dollar, please educate yourself about the subject before the next election. You owe it to your nation to make an informed vote.

A weak dollar CANNOT bring more jobs to the US and increase overall output UNLESS spending habits change here in the US. The only way spending habits will change is if prices of US manufactured goods go down in relation to foreign goods at significant enough rates that US buyers will abandon their favorite foreign brand names. Are you willing to abandon BMW yet at their current prices? It is not happening on a mass scale.

That is because the currency market isn't the only force that has a say in the matter. EU and Asian companies have chosen to combat the effect of a lower dollar by reducing their profit margin, reducing cost of production, and reducing financial overhead. They are furiously fighting to keep their market shares.

We see the reduction in profit margin in the latest figures from BMW. They are making less per unit in the US than before. We see reduction in cost of production in cars as "de-contenting" of standard features for the US market. Foreign international companies are also getting a boon in their financial overhead by repaying US loans at a much depreciated rate. For example, a loan taken out in USD that had a 1 million USD monthly payment used to cost 1.1 million Euros. Today that loan payment costs around 680,000 Euros. The term for this is dollar hedging. Loans are just one component of dollar hedging.

All those cuts in profits, cuts in cost of production, and financial costs savings are all keeping foreign made goods in competition with US made goods. Have you noticed that the dollar has sunk, but prices for foreign goods haven't gone up at the same rate that the dollar has sunk? Add in the fact that US companies have already moved the majority of production offshore, and there has only been a slight change in actual SALES of US manufactured goods, and there has been NO "upside" in a weak dollar. US manufacturing is still flat or down in most sectors (besides toys).

Don't believe it when they tell you that the weak dollar isn't all that bad because it will revive the US manufacturing industry. It isn't that simple, and it isn't happening. The weak USD has been nothing but bad for the US.

If you don't believe me, just go take a look at the news for GM today. They are reporting a USD 39 billion dollar loss in the same quarter that BMW is reporting their 1.1 billion dollar profit. GM's loss was one of the biggest quarterly corporate deficits ever. For ANY company. Part of GM's problems? They have to pay more for foreign made parts and materials because of the weak dollar.

So yes, please vote Democrat to end the Iraq war and stop the insane spending spree that has demolished the dollar. Do it for your own good. Do it for the good of your country.

But most of all, do it because I want to buy a new BMW, and this weak dollar is threatening my chances of affording one.:biggrin:
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      11-07-2007, 07:34 PM   #20
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Quote:
Originally Posted by Nixon View Post
If voting Democrat gets the United States out of Iraq, and stops our out-of-control war spending that is driving our dollar straight down, then yes, voting Democrat has a DIRECT effect on the value of the dollar.
There are a couple of problems with this argument but I am going to go down a War on Terrorism rant purely because you are upset with the price of your shiny new BMW.

Quote:
Originally Posted by Nixon
You owe it to your nation to make an informed vote.
I thank you for assuming that I am not making an informed vote. I guess voting Republican = Uninformed; voting Democrat = Informed...

Quote:
Originally Posted by Nixon
A weak dollar CANNOT bring more jobs to the US and increase overall output UNLESS spending habits change here in the US.
Go study the Asian markets and then tell me that a weak dollar does not increase output. It is a theory that has provided the backbone on the Chinese economy (hence, their instance on not revaluing their currency to appropriate levels).

Quote:
Originally Posted by Nixon
The weak USD has been nothing but bad for the US.
Hence the weak improvements in GDP. Oh wait...

Quote:
Originally Posted by Nixon
If you don't believe me, just go take a look at the news for GM today. They are reporting a USD 39 billion dollar loss in the same quarter that BMW is reporting their 1.1 billion dollar profit. GM's loss was one of the biggest quarterly corporate deficits ever. For ANY company. Part of GM's problems? They have to pay more for foreign made parts and materials because of the weak dollar.
I see, GM represents the entire US economy because their specific manufacturing problems are indicative of the same exact problems that every other industry is facing. Understand that because of the decreasing value of the dollar in comparison to other currencies, it will drive foreign companies to produce in the United States (hence, companies like BMW, Mercedes, VW, Hyundai, etc. developing (or developed) new plants in the United States). It is a principle that American companies have been taking advantage of for decades. All the while there would be some "people" who would complain about manufacturing shifting away from the homeland. But now you have increased amounts of currency in circulation , GDP increasing because of the increased about of investment in the United States itself from outsiders, and some of these same people are trying to have their cake and eat it too. It is increasingly hilarious when they use the Asian markets as an example of what we should be doing.

Quote:
Originally Posted by Nixon
So yes, please vote Democrat to end the Iraq war and stop the insane spending spree that has demolished the dollar. Do it for your own good. Do it for the good of your country.
Yes, look at that OUTRAGEOUS military spending (presented as a percentage of GDP)!



Also, I love your argument that we should not fight in the War on Terror because the price of your shiny new BMW is getting too high.
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      11-07-2007, 09:12 PM   #21
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There are a couple of problems with this argument but I am going to go down a War on Terrorism rant purely because you are upset with the price of your shiny new BMW.
you do understand that my last line was a joke, right? There is much more at stake than just me buying a new BMW. I'll go back and edit that post to add an emoticon to make it clearer for you.

Quote:
Originally Posted by MPower View Post
I thank you for assuming that I am not making an informed vote. I guess voting Republican = Uninformed; voting Democrat = Informed...
Don't you dare quote me out of context. I clearly said:

"If you don't understand the direct link between the current Republican war spending and monetary policy to the value of the dollar, please educate yourself about the subject before the next election. You owe it to your nation to make an informed vote."

That clearly implies that if you DO already understand what I was talking about, then you would already be making an informed vote. Don't put words in my mouth. If you want to still vote Rep. after educating yourself on the topic, then nothing I said would imply that your vote would be uninformed as you claim I said. You want to play that game, you play alone. I'm not going to respond to you.[/quote]

Quote:
Originally Posted by MPower View Post
Go study the Asian markets and then tell me that a weak dollar does not increase output. It is a theory that has provided the backbone on the Chinese economy (hence, their instance on not revaluing their currency to appropriate levels).
There is no comparison between the status of the USD as THE global currency (with the Euro quickly catching up) and the Yuan which is a local currency. There is no comparison between a Chinese currency that is fixed by the Chinese Gov't and a free traded dollar.

I've already gone over point by point the reasons why the dive in the US dollar isn't triggering an increase in manufacturing the way the models would predict. I've already explained why the US market isn't responding the way it is expected, and thus why it isn't responding the way China's market responded to a devalued and locked Yuan. None of the things that I have already explained that are unique to the US market is happening in China, so any attempt to say it works for China is irrelevant.

It is NOT happening here.

What part of my previous post do you disagree with? Do you claim that people have made major changes to their buying habits and are now making a much larger percent of there durable goods purchases on US manufactured goods?

Do you claim that there has been a huge growth in US manufacturing jobs, and that US manufacturing has increased?

If the lower dollar value were spurring more US manufacturing, then there would be more people employed in the manufacturing sector of the US economy than before the dollar devalued. That is not the case. In fact, the US manufacturing sector has lost literally MILLIONS of jobs over the last 6 years. No claims about what is happening in China is going to change what is happening right here on the ground, right here in America.




Quote:
Originally Posted by MPower View Post
I see, GM represents the entire US economy
Don't put words in my mouth. I'm not making any such claim. I used GM as a direct counter-example to the company at hand, which is BMW. BMW is a car manufacturer, and GM is a car manufacturer. I contrasted the two because they each represent the same corner of the manufacturing sector in each country. Deal with what I've actually said, and stop building strawmen.

Quote:
Originally Posted by MPower View Post
Understand that because of the decreasing value of the dollar in comparison to other currencies, it will drive foreign companies to produce in the United States (hence, companies like BMW, Mercedes, VW, Hyundai, etc. developing (or developed) new plants in the United States).
Here you are simply wrong on the facts. New plants are not being built in the US at the rate they were being built prior to the drop in the value of the dollar. There is not a mass export market for Merc/VW/BMW/etc cars built in the US, so they produce mostly for the US market. The US market is down and providing less profits per unit so US plant expansion has slowed instead of increasing. The hayday for the building of new US plants for overseas companies predates the drop in the value of the dollar. And here is the kicker --> That whole trend was started not by free market forces, but because of US Gov't regulations!!! That's right. Foreign plants were built here to get around US regulations and tariffs based upon foreign content. These factories did NOT come to the US due to free market pressures, much less the specific market pressure of the drop in value of the US dollar.

What you are claiming is nice in theory, and it might work in Asia, but it just isn't happening here.


Quote:
Originally Posted by MPower View Post
Yes, look at that OUTRAGEOUS military spending (presented as a percentage of GDP)!


I recognize that graph. I've seen it before. If this is what I think it is, it is a classic example of right-wing hackery. First, note that it conveniently stops in FY 2003. Before war spending got crazy. Second, if this is what I think it is, this is a graph of the BUDGET for defense spending. That is NOT the same as the actual amount of money spent on the war. The entire war has been paid for OUTSIDE the budget for Defense. The war has been paid for by supplementals outside the normal budget. The true cost of the war has NOT been calculated yet, much less graphed against GDP. Especially when your graph is missing the last 3-4 years of the war including all of the "surge".

Where did you get this graph? I would like to examine the full context of the presentation of this graph to see if I am right about it.
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      11-07-2007, 10:23 PM   #22
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Here is what is REALLY happening in the US manufacturing sector, regardless of what effect the drop in the value of the dollar theoretically should be doing. The number of jobs has dropped down to the exact same number of jobs as there were in the early 1950's! Half a century of manufacturing jobs have all been wiped out since 2000. There is no surge in US manufacturing due to the devaluation of the dollar.

What is happening in China doesn't matter. What should be happening according to the models doesn't matter.

The facts on the ground here in the US is that is just isn't happening. And I've covered exactly why.

If you have something to contradict what I've presented, I'll be happy to discuss it with you.

Otherwise, I stand by my original statement, and you've provided nothing to contradict it:

"Don't believe it when they tell you that the weak dollar isn't all that bad because it will revive the US manufacturing industry. It isn't that simple, and it isn't happening. The weak USD has been nothing but bad for the US."

I got this graph directly from the U.S. Department of Labor Bureau of Labor Statistics

http://www.bls.gov/iag/manufacturing.htm

(click on the Chart Data link under the graph of employment in manufacturing going from more than 17 million jobs in 2000, then dropping by 3 million jobs to 14,197,000 in 2006. Then set "change output options to "From: 1950 To: 2007". check include graphs NEW! and click "GO". You will get the same graph as below)
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