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DaimlerChrysler Hedges Its Operating Exposure
In August 2003, DaimlerChrysler AG acknowledged that more than half its second-quarter operating profit was generated by foreign exchange hedging transactions. In July, the automaker had reported a quarterly operating profit of €641 million, beating analyst expectations. At the time, the company said that currency trading activities to reduce the effect of the euro’s rise against the dollar had had a positive effect but did not provide details. The August admission that €350 million of its operating profit came from currency trades indicated that the company made more money on foreign exchange than it did from selling cars. Analysts said that these hedging gains explained how DaimlerChrysler managed to hold its profit margins despite a brutal price war in North America and the euro’s rise against the dollar, yen, and other currencies. Analysts said DaimlerChrysler deserved credit for managing the effects of the dollar’s decline but that it was a worrying sign if 50% of its operating profit is coming from currency trading.