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Finance
At the time, the exchange rate was DM 3.20 per dollar. At this
rate, the planes would cost Lufthansa DM1.6B
Over the previous year, the dollar had been appreciating against
the Deutschmark..
3.3
3.1
2.9
2.7
DM/$
2.5
2.3
2.1
1.9
1.7
1/1/1981 1/1/1982 1/1/1983 1/1/1984 1/1/1985
Lufthansa’s Options
Option #1: Remain Uncovered
The riskiest option with the greatest potential gain (if the dollar
weakens against the Deutschmark) and the greatest potential cost (if the
dollar strengthens).
2.2
Uncovered
2
Cost (Billions DM)
1.6
1.4
Option Hedge
1.2
Partial Hedge
1
2.2 2.4 2.6 2.8 3 3.2 3.4 3.6 3.8 4
Ruhnau was convinced that the dollar was going to fall and opted for
the partial hedge. He was proved right as the dollar plummeted in the
mid eighties.
3.5
3.3
3.1
2.9
2.7
2.5
2.3
2.1
1.9
1.7
1.5
1/1/85 5/1/85 9/1/85 1/1/86 5/1/86 9/1/86 1/1/87 5/1/87 9/1/87
Did Ruhnau make the right decision?
60000
50000
40000
Cayenne
30000
Boxster
911
20000
10000
0
1994 1995 1996 1997 1998 1999 2000 2001 2002
Porsche’s Competitive Position
Automaker Sales Revenue Margin Debt (% ROIC
(Billions) (Per of
Vehicle) Assets)
Audi E 22.6 E 27,000 6.6% .2% NA
BMW E 42.3 E 32,211 8.0% 47.5% 11.3%
Fiat E 58.2 E 25,829 1.6% 31.3% -2.9%
Mercedes E 50.2 E 39,000 6.4% NA NA
Peugeot E 54.4 E 16,192 5.3% 42.9% 10.5%
Porsche E 5.6 E 72,889 16.4% 6.4% 20.5%
Renault E 36.3 E 14,250 4.1% 47.6% 3.7%
Volkswagen E 86.9 E 13,583 5.2% 42.4% 6.8%
“We learned the hard way that banks are never there when you
need them…” : Porsche’s anti-debt philosophy
Porsche’s Foreign Exchange Exposure
United Kingdom United States
Automaker Sales Production Sales Production
BMW 11% 15% 26% 11%
Fiat 6% 0% 0% 0%
Mercedes 9% 0% 19% 7%
Peugeot 12% 6% 0% 0%
Porsche 11% 0% 42% 0%
Renault 9% 0% 1% 1%
Volkswagen 7% 0% 13% 7%
$ 93,000
Implied Exchange Rate = = 1.09 $/E (.91 E/$)
E 85,000
EUR/USD
As the Dollar falls, so do profit margin!
At the current $1.29 per Euro exchange rate…