Global Economics

BMW: In Crisis Mode, Motoring Shrewdly


CEO Reithofer says BMW's preparations for a slump have paid off. But if demand keeps plunging, analysts say something will have to give

BMW's bottom line may look bad, but the German carmaker is in fundamentally good shape and well prepared for the tough year ahead. That was the basic message from Chief Executive Norbert Reithofer as he took questions from reporters on Mar. 18, a few days after the company disclosed a fourth-quarter operating loss of $940 million on sales of $16.8 billion.

In fact, Munich-based BMW (BMWG.DE) still managed an operating profit of $538 million in the fourth quarter, not counting writedowns and one-time items. The biggest writedown was $1 billion that BMW set aside to cover declines in the value of automobiles leased to customers, primarily in the U.S. In addition, BMW began preparing for a downturn early last year, reducing its workforce by 13,000 people, to about 100,000, while nearly doubling liquid assets on the company balance sheet, to $10.6 billion. "We took measures to absorb the effects of the economic crisis much sooner than other carmakers," Reithofer said.

Nothing More to Cut

The risk for BMW is that the global auto market will plunge even more than the 10% to 20% the company expects. There aren't many more places to cut. "So far, BMW has been able to weather the crisis without sacrificing any of its strengths," says Christoph Stürmer, analyst at market watcher Global Insight (IHS) in Frankfurt. "But if the crisis continues, something will have to give."

BMW probably can't cut any engineers or designers without endangering future products, Stürmer says. And it would be risky for the company to lean too heavily on suppliers for savings. They are already suffering from the downturn and could only cut costs by reducing quality—which would be bad for BMW's hard-won reputation for reliability.

Reithofer continued to sound bullish about BMW's long-term prospects. The company's investment in "Efficient Dynamics" technology gives it one of the most fuel-stingy fleets in the business and helps address buyer concerns about global warming. In addition, beginning next year, BMW will begin launching updates of its popular 3 Series and 5 Series cars. "Long term, the automobile market will continue to grow," Reithofer said. "The current sales decline in the premium segment is no measure of the future."

Reithofer did, however, back away from plans to boost BMW's volume to 1.8 million vehicles in 2012, from about 1.4 million in 2008. Those figures include the Mini and Rolls-Royce brands, as well as BMW motorcycles. The number of vehicles sold will be at least 100,000 lower than the earlier forecast, Reithofer said.

Any predictions are questionable, though, as BMW execs tacitly conceded. No one really knows how bad the auto industry slump will get. "The big question is how long the crisis will last, and there are no really reliable statements on that," Chief Financial Officer Friedrich Eichiner said.

Ewing is BusinessWeek's European regional editor.

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