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BMW Economy Crisis
BMW Says No Recovery Before Mid-2009, May Cut Output
Bayerische Motoren Werke AG, the world's largest maker of luxury cars, said there'll be no recovery in auto markets until at least the middle of 2009 and that it's prepared to deepen production cuts if demand continues to slide.
BMW still aims to increase car sales this year, even after September deliveries declined, Chief Executive Officer Norbert Reithofer told journalists at the Paris Motor Show today. U.S. sales dropped 26 percent as demand for both BMW and Mini-brand vehicles fell, the Munich-based company said last night.
``We don't expect a recovery starting before mid-2009,'' Reithofer said. ``What happens after 2009 is difficult to predict.'' Agreements with unions give BMW flexibility to cut four weeks of production by idling plants and reducing hours, he said.
BMW scrapped its 2008 profit forecast on Aug. 1 and already plans to lower output by 20,000 vehicles, equal to 1.3 percent of 2007 deliveries, because of declining U.S. sales. The company has also raised prices by 2.1 percent in the world's biggest economy as it grapples with the dollar's decline against the euro and falling values for cars it sells after leases expire.
BMW, which didn't provide a figure for September group sales, fell as much as 5.4 percent to 24.67 euros and was trading at 25.52 euros as of 1:16 p.m. in Frankfurt.
U.S. Plant
The German company, which has operated a plant in South Carolina since 1994, is in talks with U.S. authorities about participating in the U.S. government's program to promote development of fuel-efficient vehicles, Reithofer said.
Reithofer has a program in place to cut spending by 6 billion euros ($8.4 billion), including the elimination of 8,100 jobs, to help widen its profit margin to 8-10 percent by 2012 from 6 percent in 2007.
The carmaker said Aug. 1 that it will report a return on sales of 4 percent this year and Reithofer today reaffirmed that goal. The company is also ``full on track'' to reach its job- cuts target after cutting 6,500 posts through August, he said.
The CEO reiterated that the company may have to increase provisions for bad debts and declining values of cars returned from leases from the current 695 million euros.
Recovery Hopes
The owner of the Mini and Rolls Royce brands is pinning hopes for a recovery on a new version of the 7-Series luxury sedan and an updated 3-Series model, which reach showrooms during the autumn. BMW also presented a crossover Mini concept car at the Paris show as well as the X1 compact SUV study. It's also currently testing an electric-powered Mini in New York, California, London, and Berlin.
The U.S. credit-market turmoil has spilled over to the European economy, with bailouts of Fortis in Belgium and Hypo Real Estate Holding AG in Germany and the seizure of Bradford & Bingley Plc in the U.K. threatening to further sap already-weak demand for autos.
Reithofer said BMW didn't have any financing ``bottlenecks'' and the conditions it was receiving was at a ``very good level.''
European car sales plunged 16 percent in August, accelerating this year's decline to 3.9 percent, according to the Brussels-based European Automobile Manufacturers' Association.
An anticipated decline of more than 10 percent in European sales for last month will ``send a shudder through the entire industry as the slowdown in showroom traffic seen over the traditionally quieter summer months worryingly extends into the stronger selling month of September,'' according to a report by Paul Newton, an analyst at research company Global Insight.