BMW plans massive cost cuts to keep profits above water

German high-end carmaker BMW warned Wednesday it expects pre-tax profits “well below” 2018 levels this year as it announced a massive cost-cutting scheme aimed at saving 12 billion euros (USD 13.6 billion) in total by 2022. A spokesman said that “well below” could indicate a tumble of more than 10 per cent.

The Munich-based group’s 2019 result will be burdened with massive investments needed for the transition to electric cars, exchange rate headwinds and rising raw materials prices, it said in a statement. Meanwhile it must pump more cash into measures to meet strict European carbon dioxide (CO2) emissions limits set to bite from next year.

And a one-off windfall in 2018’s results will create a negative comparison, even though pre-tax profits already fell 8.1 per cent last year. Bosses expect a “slight increase” in sales of BMW and Mini cars, with a slightly fatter operating margin that will nevertheless fall short of their 8.0-per cent target.

“We will continue to implement forcefully the necessary measures for growth, continuing performance increases and efficiency,” finance director Nicolas Peter said at the group’s annual press conference. BMW aims to achieve 12 billion euros of savings in the coming years through “efficiency improvements” including reducing the complexity of its range.

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“Our business model must remain a profitable one in the digital era,” chief executive Harald Krueger said. This year, most new recruits at the group will be IT specialists, while the total number of employees is set to remain flat at around 135,000 worldwide.

Departures from the sizeable fraction of the workforce born during the post-World War II baby boom and now reaching retirement age “will allow us to adapt the business even more to future topics,” BMW said. All the firm’s forecasts are based on London and Brussels reaching a deal for an orderly Brexit and the United States foregoing new import taxes on European cars.

“Developments in tariffs” remain “a significant factor of uncertainty” in looking to the future, finance chief Peter said, adding that “the preparations for the UK’s exit from the EU will weigh on 2019’s results as well”.    In annual results released ahead of schedule last Friday, BMW blamed trade headwinds and new EU emissions tests for net profits tumbling 16.9 per cent in 2018, to 7.2 billion euros.

BMW shares were down 4.6 per cent in midday trading while Frankfurt’s blue-chip DAX 30 index was 1.2 per cent lower.