Mixed news for BMW as earnings slip

Large discounts in key European markets as well as spiralling technology costs are the main reasons behind BMW’s recent announcement about its heavier than expected drop in first quarter earnings for 2013.

Large discounts in key European markets as well as spiralling technology costs are the main reasons behind BMW’s recent announcement about its heavier than expected drop in first quarter earnings for 2013.

Latest figures show earnings before interest and tax (EBIT) declined 15.9 per cent to €1.58 billion, while operating margins slumped to 9.9 per cent from 11.6 per cent a year earlier.

“We don’t expect to receive a great deal of impetus from most European markets over the next few months,” chief executive Norbert Reithofer said. “Economic conditions in these areas are likely to remain challenging.”

In spite of the somewhat gloomy analysis, BMW has re-stated its target for 2013 to push vehicle sales to a new record and achieve an operating margin of between 8 and 10 per cent in automotive operations.

One aspect behind this optimistic outlook is largely due to German luxury brands such as market leader BMW, Volkswagen’s Audi and Mercedes emerging from the economic downturn in better shape than had perhaps been expected.

In an effort to strengthen its hand, BMW is set to pump large resources into research and development of fuel-efficient technologies.

BMW’s main rival Audi, benefiting from vast resources at parent VW, posted a smaller drop in its first-quarter operating margin to 11.1 per cent from 11.4 per cent.

Industry experts have also defended the latest release concerning BMW’s financial well-being. Christian Stadler, a car analyst and Associate Professor of Strategic Management at Warwick Business School, said there was still much to admire about how BMW was going about its business.

He said: “BMW profits are falling but not everything is bleak for them - quite the opposite. Profits might not be as high as last year but they are still at a healthy £1.1bn. This is no small achievement when we consider how tough the European market is at the moment. Strong sales in the US and China in particular gives BMW confidence that annual performance will not suffer much.”

He added: Car firms positioned in this way will be able to avoid the worst of the European slowdown.”