Luxury car makers caught up in crisis

August 2, 2008
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, FRANKFURT, August 2 – The German luxury car maker BMW has joined rival Daimler in warning it would miss its 2008 targets, a sign that high-end manufacturers have been caught by the international financial crisis.

BMW said it could not give a full-year outlook after its first-half pre-tax profit fell by 35 percent in the first six months of the year to 1.24 billion euros.

Net profit fell by 26 percent to 994 million euros.

Chairman Norbert Reithofer provided no precisions during a telephone news conference early in the day.

Last week, Daimler and its Mercedes brand cut its full-year profit forecast to "more than seven billion euros," from a previous outlook slightly above 7.7 billion euros, owing to slumping auto markets.

The companies are still making money but profits have fallen sharply.

"It is already a bad sign," said Ferdinand Dudenhoeffer, a German auto specialist.

"And 2009 is going to be very tough too," he told AFP.

Other European car makers such as Fiat, Peugeot and Volkswagen have fared better with cheaper cars, but high-end German models depend on the US market where financial conditions have taken a serious turn for the worse.

Dudenhoeffer said the other car makers would also feel the pinch "when things become tougher in Europe, Brazil or China."

He expected more profit warnings in the next four or five months.

For BMW, the US market is its biggest, and the German group has extensive leasing operations there as well which were were slammed by the international financial crisis.

In the first half, BMW booked a provision of 695 million euros to cover financial risks, it said.

"The price level of pre-owned cars in the USA — and hence the level of revenues that can be generated on vehicles returned at the end of leases — remained under further pressure," the company explained.

A major programme of job cuts cost the company an additional 107 million euros, it added.

Steep rises in oil and raw material prices and the euro\’s rise in value against the dollar were other factors behind the weaker results, the statement said.

"A number of key external factors have got worse" in the second quarter, BMW financial director Michael Ganal told a telephone press conference.

"History has rarely seen factors like this occur at the same time," he added.

The group plans to reduce the number of cars sold in the United States by around 40,000 from more than 300,000 last year, 40 percent of which were to be re-routed to Europe and China.

"The remaining cars will not be produced," Ganal said, a decision that concerned some 20,000-25,000 units.

BMWs would also realign its US business and increase prices, Reithofer added.

"We will start the respective modifications for the American market this year and will continue in 2009," he said.

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