China remains the world’s biggest vehicle market but a slowing economy, rollercoaster stocks and auto plate restrictions in some cities to reduce pollution have hurt demand.
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Munich-based BMW also said it sold a less profitable mix of vehicles, containing more compact cars that typically have lower profit margins.
German luxury automaker BMW AG saw net profit slip 1 percent in the second quarter amid higher launch costs for new vehicles as key models approach the end of their life cycle, the company said Tuesday, August 4, 2015.
After conducting a two-year study involving more than 3,000 customers in China, BMW discovered that they were marketing their products wrong from the beginning.The Bavarians have been playing the same card all manufacturers use in the biggest auto market in the world, offering more leg room in the back and creating special models for this particular goal.
“If conditions on the Chinese market become more challenging, we can not rule out a possible effect on the BMW group’s outlook”, the company said.
Although BMW had warned that any further deterioration in demand in China could put its forecast at risk, this was not the expectation for now.
“The scale of the increase during the forecast period is likely to be held down by fierce competition on automobile markets, rising personnel costs, continued high levels of upfront expenditure to safeguard business viability going forward and upcoming challenges relating to the normalisation of the Chinese market”, BMW said.
The profit margin before interest and taxes, a key earnings figure, fell to 8.4 percent in the quarter from a strong 11.7 percent in the year-ago quarter. While BMW’s China sales dropped 0.1 percent in June, sales of rival Mercedes-Benz passenger cars jumped 38.5 percent. Management nevertheless continues to expect a solid rise in pretax group profit for the full year and significant revenue growth at its automotive segment.
“The Chinese market is at a crossroad for fundamental changes,” said Karsten Engel, BMW China’s chief executive officer, to reporters in Shanghai. The automotive division’s earnings declined 3.4 percent to 3.61 billion euros.
BMW is bringing out a new version of the 7-Series as part of a drive to refresh its model line. Profit matched the 2.54 billion-euro average of 10 analyst estimates compiled by Bloomberg.
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Krueger, 49, succeeded Norbert Reithofer as CEO in May.
