Daily Management Review

Significant Drop In Profits In 2019 Anticipated By BMW


Significant Drop In Profits In 2019 Anticipated By BMW
German luxury car maker BMW predicted on Wednesday that the current year would not be a good one for it. The car maker said that it anticipates that the pre tax profits for the entire group would drop by more than 10 per cent for the current year.
In order to create some safeguard against that expected headwinds in 2019, BMW also announced a far-reaching safety net of 12 billion euro or $13.6 billion in cost savings and efficiency plans so that it is able to counter the need for higher investments in technology and costs related to fluctuations in currency values – important for its overseas revenues.
The company reported a significant drop of 7.9 per cent in operating profit for the entire of 2018 last week and at the same time announced that a cost cutting program would be set up by it to counter an expected difficult year in 2019.
The Munich-based carmaker said that the total earnings for the entire group is expected to be significantly lower than the 2018 numbers.
"The high level of volatility makes it difficult to provide a clear forecast," BMW said.
"Depending on how conditions develop, our guidance may be subject to additional risks; in particular, the risk of a no-deal Brexit and ongoing developments in international trade policy," said the company’s Chief Financial Officer, Nicolas Peter.
BMW has drawn up a strategy to enhance operational efficiency in its plants and distribution and supply chains and reduce costs of operations at the same time and that would be further expanded across the entire group, the company said.
"By the end of 2022, it expects to leverage potential efficiencies totalling more than 12 billion euros," BMW said in a statement.
A part of that cost savings would come from bolstering up its digital simulations so that there is a reduction in the time period for development of new models for its cars by as much as one third of the typical time required for the processes.
"Among other savings, digital simulations and virtual validation could eliminate the need for some 2,500 expensive prototype vehicles by the year 2024," BMW said.
The company also believes that the additional investments towards the development of technologies for electric and self-driving vehicles would remain a financial burden on the company as well as on its earnings.
For the current year, the anticipated drop in the operating margin in its automotive division would be between 6 per cent and 8 per cent, BMW said in a forward looking statement which would be significantly lower than the targets set by the company itself  of being between 8 per cent and 10 per cent for 2019. The automotive operating margin last year of the company was at was 6.3 per cent.