Abu Dhabi, UAEMonday 20 May 2019

BMW to trim costs amid slowing economy and trade war concerns

The carmaker won’t make a successor to the 3-Series Gran Turismo even though the current model is selling well

BMW earnings have been pressured by tariffs on cars made at its plant in the US, and sent to China, as well as price competition in Europe. Bloomberg
BMW earnings have been pressured by tariffs on cars made at its plant in the US, and sent to China, as well as price competition in Europe. Bloomberg

BMW will weed out its model lineup to reduce costs as the German luxury carmaker copes with a cooling global economy and persistent trade tensions that show little sign of resolution.

“The challenges facing the entire sector are unlikely to diminish in the coming months,” chief executive Harald Krueger said Friday in a statement presenting preliminary results. “Great efforts will, therefore, be needed across the entire group to help shape the sector’s transformation under such conditions.”

BMW earnings have been pressured by tariffs on cars made at its plant in Spartanburg, South Carolina, and sent to China, as well as price competition in Europe. Carmakers across the globe reduced targets last year after new emissions testing and concerns over Brexit added to the industry’s woes. BMW’s return on sales in the core automotive division dropped to 7.2 per cent from 9.2 per cent in 2017, below a historical 8 per cent to 10 per cent range.

BMW said it won’t make a successor to the 3-Series Gran Turismo, even though the current model is selling well. More derivative versions will also be cut. The carmaker said it will also step up other measures to reduce complexity, without specifying them. BMW cut its proposed dividend by 50 cents to 3.50 euros per common share.

Carmakers aren’t “supermarkets, there is no good reason to sell everything,” said Juergen Pieper, an analyst at Bankhaus Metzler. Cutting the models was “the right way,” he said. “Nobody will miss them.”

The shares rose 1.3 per cent to 74.75 euros at 12:25 pm in Frankfurt, trimming losses over the past year to 8.2 per cent. BMW’s return on automaking beat the company’s goal of 7 percent.

Other carmakers are chiming in with cost cuts. Volkswagen AG brand Audi will present a new plan in May to reignite momentum, including trimming back management ranks for savings and faster decision-making. Mercedes Benz-parent Daimler vowed comprehensive cost-cutting measures last month when the company presented its full-year earnings.

Since the second half of last year, major markets including China and Europe have deteriorated further. BMW reiterated a January prediction for a rise in deliveries this year, though sales have dropped 2 percent through February as the European market declined for a sixth straight month.

BMW has joined forces with arch-rival Daimler AG in two key areas, car-sharing and autonomous driving, in a bid to share costs.

The company will present full earnings on March 20, including its outlook for the current year. BMW is likely to guide for pre-tax earnings to decrease slightly, Evercore ISI analyst Arndt Ellinghorst said in a note.

Updated: March 15, 2019 04:43 PM

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