BMW, the German premium carmaker, yesterday underlined the corrosive effects of the weakening US dollar and rising raw material prices by posting a 4.6% decline in first-quarter earnings despite record sales.

The group said pre-tax profits fell from €851m a year earlier to €812m (£553m), with the auto division showing a steeper 5.4% fall from €742m to €702m because of the late launch of the new BMW 3-series and the strong euro.

But Helmut Panke, chief executive, said unit sales this year would be up to 9% higher than 2004 and reiterated his target of matching last year's record profits despite "external burdens",

The company blamed higher raw material prices, notably steel, currency factors and increased competitive pressures for a 4.1% decline in group revenues to €10.4bn.

Stefan Krause, chief financial officer, indicated in March that these combined factors would hit earnings this year by a "low-triple-digit-million" figure and warned that the weaker dollar would have a growing negative effect.

Admitting that earnings had also been hit by the costs of launching the new 3-series and the updated 7-series, he said they would be further hurt by the unwinding of favourable currency hedging contracts.

BMW said more than half its net dollar exposure for this year is hedged.

The group, which expects its BMW cars to overtake Mercedes as the world's best-selling luxury car brand this year, is still selling more cars, with sales up around 7% last month, according to Dr Panke.

In the first three months car sales rose 8% to 292,207, a new first-quarter record, with Mini sales up 10.4% on a year earlier to 52,694.

But earnings were held up by a 10.7% increase in motorcycle profits to €31m and by a 13.6% rise in profits at its financial services business to €150m.