BMW Is Weeding Out Its Lineup to Prepare for the Electric Future

(Bloomberg) -- BMW AG will weed out its model lineup to reduce costs as the German luxury-car maker copes with a cooling global economy and persistent trade tensions that show little sign of resolution.

“The challenges facing the entire sector are unlikely to diminish in the coming months,” Chief Executive Officer Harald Krueger said Friday in a statement presenting preliminary results. “Great efforts will therefore be needed across the entire group to help shape the sector’s transformation under such conditions.”

The company will also reorganize its management board, consolidating sales of BMW, Mini and Rolls-Royce under a central position headed by Pieter Nota, who was responsible for BMW brand sales so far. Peter Schwarzenbauer, leading Rolls-Royce and Mini cars as well as digital businesses at the Munich-based carmaker, will leave the company at the end of October when he turns 60.

BMW earnings have been pressured by tariffs on vehicles made at its plant in Spartanburg, South Carolina, and sent to China, as well as price competition in Europe. Carmakers across the globe reduced targets last year after new emissions testing and concerns over Brexit added to the industry’s woes. BMW’s return on sales in the core automotive division dropped to 7.2 percent from 9.2 percent in 2017, below a historical 8 percent to 10 percent range.

BMW said it won’t make a successor to the 3-Series Gran Turismo, even though the current model is selling well. More derivative versions will also be eliminated. The carmaker said it will step up other measures to reduce complexity, without specifying them. BMW cut its proposed dividend by 50 cents to 3.50 euros per common share.

Carmakers aren’t “supermarkets, there is no good reason to sell everything,” said Juergen Pieper, an analyst at Bankhaus Metzler. Getting rid of the models was “the right way,” he said. “Nobody will miss them.”

The shares rose 0.8 percent to 74.36 euros at 2:14 p.m. in Frankfurt, trimming losses over the past year to 8.7 percent. BMW’s return on automaking beat the company’s goal of 7 percent.

Other carmakers are chiming in with cost cuts. Volkswagen AG brand Audi will present a new plan in May to reignite momentum, including scaling back management ranks for savings and faster decision-making. Mercedes Benz-parent Daimler AG vowed comprehensive cost-cutting measures last month when the company presented its full-year earnings.

Porsche, presenting its outlook Friday, said a boost to revenue this year from the latest 911 sports car will be partly offset by more complex emissions testing in Europe and fading out its diesel cars. VW’s most profitable brand is considering digital acquisitions to help with a goal of generating as much as 3 billion euros ($3.4 billion) in annual revenue in three to five years.

Porsche is also in talks for possible partnerships with the likes of Tencent Holdings Ltd., Baidu Inc. and Alibaba Group Holding Ltd. to offer the latest tech gadgetry in its largest market China, Chief Financial Officer Lutz Meschke said.

Weaker Markets

Since the second half of last year, major markets including China and Europe have deteriorated further. BMW reiterated a January prediction for a rise in deliveries this year, though sales have dropped 2 percent through February as the European market declined for a sixth straight month.

BMW has joined forces with arch rival Daimler in two key areas, car-sharing and autonomous driving, in a bid to share costs.

The company will present full earnings on March 20, including its outlook for the current year. BMW is likely to guide for pretax earnings to decrease slightly, Evercore ISI analyst Arndt Ellinghorst said in a note.

To contact the reporter on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann

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