BMW and Toyota, two carmakers with heavy investments in Britain, caused surprise yesterday by announcing falls in their quarterly profits.
Worse hit of the two was BMW, the world's biggest manufacturer of luxury cars, which announced a 15 per cent drop in earnings for the second quarter of the year.
The Munich-based group, which builds the successful Mini at the former Rover works at Cowley, Oxford, announced pre-tax earnings of 916 million euros (£632 million) compared with 1 . 08 billion euros (£744 million) in the same period last year and market expectations of about 1.05 billion euros.
Pricing pressures, the weak dollar and high raw material costs caused the downturn which sent BMW shares down by four per cent on the German blue chip DAX and DJ Stoxx European automotive indices.
"The negative currency impact caused by unfavourable transfer exchange rates, the additional cost of raw materials and more intense competition meant that the record levels achieved in the previous year could not be repeated," BMW said in a statement.
The company is fighting to keep its full-year profits figures roughly in line with those of last year, which was a record 12 months for BMW.
But while quarterly earnings may have flagged, the Bavarians were yesterday able to celebrate an improvement in the group's free cash flow - thanks to events in Britain.
This rose by 15.6 per cent to 3 . 02 billion euros (£2.08 billion) after being boosted by a 1 billion euros (£690 million) final installment of the £1.84 billion that Ford agreed to pay for Land Rover in July 2000.
Thanks to strong influx of cash, BMW is well placed to pursue its first ever share buyback that will ultimately cancel out up to 10 per cent of its stock.
Toyota, which is not only the world's most profitable carmaker but which is also fast catching up GM as the biggest, generated the bigger surprise yesterday when it announced a
9.7 per cent fall operating profit for the first quarter of its financial year, which dates from April 1.
Toyota, which builds Corolla and Avensis cars at Burnaston near Derby, said the fall to 405.13 billion yen ( £ 2 billion) was down to increased spending on research and development and on start up costs incurred by the new factories it is building to keep up with demand.
The company does not go in for profit forecasts but it was bullish in May when it said 2005-06 earnings would be line with the previous year's record.
"Production and sales volumes are healthy," senior managing director Takeshi Suzuki said yesterday.
"If exchange rates stay at current levels (the yen is trading at about 111.40 to the dollar) we'd be looking to achieve higher revenue and profits this year."
So far this year Toyota has opened new plants in the Czech Republic, Poland and Mexico and has plans in the pipeline for more in China, Russia, Canada and the US.
The group plans to sell nearly eight million vehicles globally in the current year compared with 7.85 million last time.