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BMW doubts, and German car sales slump sharply

Text by AFP

Latest update : 2008-11-04

While the Geman car sector saw a drastic 8% fall in October, one of its leading manufacturers, BMW, announced it will drop its full-year outlook while posting a lower net profit than expected.

German new car sales slumped sharply in October with a drop of eight percent, the sector federation VDA said on Tuesday.
Since the beginning of the year, the number of new cars registered in the biggest European economy was virtually flat at 2.63 million, a VDA statement said.
The federation forecast full-year sales of 3.1 million vehicles, revising lower a previous estimation of 3.2 million.
On Monday, Spain said that new car sales had dropped by 40 percent and Italy reported a fall of 19 percent.

Hit head-on by the international financial crisis, German luxury car maker BMW said on Tuesday that it could no longer give an earnings forecast for this year.

"No serious prognosis is currently available for the rest of 2008," chairman Norbert Reithofer told a telephone news conference.

"We are far from overcoming the financial crisis, in particular with respect to its consequences on the real economy in 2009," he added.

Shares in the company initially posted sharp losses but later soared higher after Reithofer stressed that "we will, however, achieve a result that is clearly positive" this year.

The Munich-based group said it would take additional charges of 1.3 billion euros (1.64 billion dollars) in the third quarter and that it would cut output by another 40,000 units this year, on top of 25,000 announced earlier.

The total represents a drop of around four percent from the number of cars produced in 2007.

Third-quarter sales fell by 8.6 percent to 12.6 billion euros, while net profit plunged by 63 percent to 298 million euros, the company said.

BMW pointed to several factors which had hit its results, including consumer reticence in key markets, weak used car sales that hurt leasing operations, increased financing costs and higher prices for raw materials early in the quarter.

"The likely progress of business over the coming months cannot be forecast with any exactitude," a statement said.

In late October, rival German car maker Daimler also acknowledged it had been hit by the crisis and lowered its forecast.

In 2007, BMW had posted a net profit of 3.13 billion euros and record sales of 1.5 million vehicles.

Reithofer told media on Tuesday however that "two of our three high-end brands -- Mini and Rolls-Royce - will advance."

In the United States, BMW's largest market, "private consumption and consumer confidence have dipped perceptibly," the group's statement said.

Rival Porsche said Monday that its North American sales had plunged by 39 percent in October from the same month a year earlier.

BMW cars produced in the United States will now be shipped to more promising markets, the company said.

Its financial services unit, which handles important US leasing operations, posted an operating loss of 26 million euros, compared with a profit of 176 million a year earlier.

BMW's nine-month net profit shed 39.7 percent to 1.292 billion euros.

The group said that positive effects of the economic slowdown, including easing pressure on raw material prices and a stronger dollar "are nowhere near sufficient to off-set the extremely high level of expenses" it had to bear.

"It cannot be ruled out that the risk provision for bad debts and lease financing will have to be increased again before the end of 2008," it warned.

BMW said it was in talks with its works committee to link staff bonuses more closely to the group's results, which would mean cutting such bonuses this year.

BMW has also undertaken a deep restructuring of its personnel and aims to eliminate 8,100 posts by the end of the year.

If necessary, more temporary posts would also be eliminated, Reithofer said, adding that some projects would be be cancelled as well.

In midday trades on the Frankfurt stock exchange, BMW shares nonetheless showed a gain of 7.70 percent at 22.16 euros, while the DAX index was up by 2.17 percent overall.

The stock had lost almost 7.0 percent in early trading.

"But that doesn't say anything about any positive aspects of the figures," a dealer said.

Weak sector results have already been priced into auto stocks, he added.

Date created : 2008-11-04