BMW Remains In The Black, But Lags Competition

BMW’s net profit dived 47 per cent to €210 million in 2009, recording the company’s worst performance since it lost €2.5 billion in 1999, and investors worried that the company was losing ground in the profit race against its premium market competitors Mercedes and Audi.

According to Nomura International analyst Dorothee Cresswell, BMW’s profit margin in 2009’s 4^th quarter was only 0.7 per cent, compared with Mercedes 6.8 per cent and Audi’s 5.3 per cent.

Cresswell said BMW’s profits before interest and tax (EBIT) was less than expected, and €20 million below market expectations. There was some mitigation though, because BMW’s relatively old vehicle lineup caused pricing problems and start up costs for imminent launches ballooned.

Deutsche Bank agreed that BMW had slipped behind the competition.

Least profitable
“In its peer group, BMW was by far the least profitable premium carmaker in the final quarter. The outlook remained vague and unchanged, guiding for a single digit increase in car sales (for 2010) to above 1.3 million versus 1.28 million in 2009 and higher profitability, but unquantified,” Deutsche Bank said.

“The core automotive division failed to improve its profitability as much as we expected,” the bank said.

Nomura’s Cresswell thought BMW’s longer term prospects looked impressive though, with its strong new product momentum – 60 per cent of the lineup is renewed by 2012, starting with the 5 Series this year. She also pointed to ambitious cost cutting targets of €4 billion material and purchasing cost savings by 2012.