Carsales Staff•23 Jun 2014
NEWS
BMW to slash costs by billions
MINI and 1 Series in the firing line; consultants outline cost-cutting measures worth at least three billion eurosBMW CEO Norbert Reithofer is reported to be unhappy with the costs attributed to building and marketing MINI and the BMW 1 Series, according to industry sources.
A German publication, Manager Magazin, reports that Reithofer has hired consultants to formulate a plan for the staged reduction of costs – to the tune of between three and four billion euros a year (AUD $4.4 to $5.8 billion). BMW issued a statement earlier this week contradicting the report, but still citing cost reduction measures worth "several hundred million euros a year."
It's understood that the company remains profitable – just not as profitable as Reithofer would like. The margin of earnings before interest and tax (EBIT) for 2013 had fallen to 9.4 per cent, from 10.8 per cent the year before. That decline in profitability is due to an amalgam of expenses, according to respected industry journal, Automotive News Europe.
New drivetrain technologies, expanded production in the USA, South America and China, and the development of smaller BMW models and the new MINI range (pictured) have all played a part in eroding the company's profitability. It's a short-term problem, it would seem, with the added production output in the Americas and China aimed at increasing global vehicle sales from two million currently to 2.5 million in 2016.
And the investment in alternative-energy drivetrain systems is a program the company must undertake, merely to keep pace with Audi and Mercedes-Benz, both of which are embarked on their own similar programs. ANE reports that BMW's EBIT remains ahead of Mercedes-Benz (seven per cent), but behind Audi (10.1 per cent). Munich is committed to a sustainable EBIT of between eight and 10 per cent, but wouldn't otherwise comment on the Manager Magazin report.
A Munich newspaper, Muenchner Merkur, has reported that BMW will reduce labour costs by as much as 100 million euros (AUD $149 million) from next year, and BMW CFO Friedrich Eichiner last month announced the company planned to reduce R&D expenditure from 6.3 per cent of sales revenue to between five and 5.5 per cent this year.
BMW's cost reduction plans are at odds with the reported gain in pre-tax profit this year, due in part to the introduction of the 4 Series Gran Coupe and the X4 SUV.
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Written byCarsales Staff
Our team of independent expert car reviewers and journalists
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