Pay Slashed, No Profit Outlook at BMW | Business| Economy and finance news from a German perspective | DW | 18.03.2009
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Pay Slashed, No Profit Outlook at BMW

BMW says the economic crisis prevents it from offering a detailed profit forecast for 2009. Instead, it will focus on a sound business plan in a bid to maintain its independence through what will be a "transition year."

Norbert Reithofer, CEO of BMW group

CEO Norbert Reithofer took a pay cut of 40 percent

At the company's annual press conference in Munich on Wednesday, March 18, BMW said it expects a further drop in sales this year and announced further cash-saving measures.

"We don't believe we can reach the sales turnover of 2008," CEO Norbert Reithofer said. He declined to make a prediction for 2009, saying it would be a year of transition.

The company will slash boardroom pay by 40 percent, executive pay by a third, and employee salaries by 10 percent to preserve liquidity.

"I am convinced our employees understand the difficulty of the current situation and are willing to accept this hardship," Reithofer said. "Our goal is to maintain the BMW group's independence."

According to the group's annual report, Reithofer's pay fell by 39.5 percent to 2.3 million euros. Executive compensation has become a hot button issue in Germany, and draft legislation that would tighten the framework on salaries was approved by the government last week.

Short-time working extended

Wednesday's announcements represented another blow for the world's leading luxury carmaker, following news last week of a fourth-quarter operating loss of 718 million euros ($935.5 million). Net profit plummeted by 89 percent to 330 million euros as sales slumped around the world in the wake of the global recession.

However, Reithofer said that after an inevitable decline in sales this year, he expected volumes recovering in 2010 on the back of planned launches of highly profitable models.

A BMW spokesman said on Wednesday that the company planned to extend short-time working at its plants in the southern German cities of Regensburg and Dingolfing throughout April and May.

He said this would mean 40,000 fewer cars being produced, in addition to the cutback of 38,000 as a result of short-time working in February and March.

Daimler also vague on 2009 outlook

BMW and Mercedes-Benz logos

BMW and Mercedes-Benz are saving on parts together

Meanwhile, BMW's rival, Daimler, has also declined to give a detailed outlook for 2009, saying only that it expected sales to fall from last year's level.

In one aspect, though, the two carmakers have decided it makes sense to stick together: the purchasing of materials and parts.

"We will extend this cooperation and progressively buy more and more parts and components together," Reithofer said.

BMW and Daimler's Mercedes-Benz division are generating savings of 8 to 15 percent with their joint purchases of items such as tires and electronic components, said Herbert Diess, BMW's purchasing chief.

A more buoyant mood prevailed on Wednesday at Volkswagen, Europe's largest carmaker. The Wolfsburg-based company said it was holding on to its plans for investment and the introduction of new models in China, despite the economic downturn.

VW looks to China for growth

VW plans to increase its production this year in its largest foreign market by about 5 percent to 50,000 cars, said Winfried Vahland, head of Volkwagen's operations in China.

Volkswagen Chief Executive Officer Dr. Martin Winterkorn poses with the new Volkswagen Lavida during its' world premiere at the 2008 Beijing Auto Show

Volkswagen is hoping for a boost from its Chinese market

The executive said he expected China to overtake Germany as VW's largest market in 2009 or 2010 and to become the world's largest car market within three years.

"We ourselves want to grow more strongly than the entire market," Vahland said, predicting a profitable 2009.

Volkswagen saw its sales in China rise 12.5 percent last year to more than 1 million cars as the entire domestic car market grew by 8 percent.

The German company plans to introduce five new models this year and at least four next year. VW also plans to present three cars at the Shanghai car show in April that it plans to begin producing in China, including its new Golf.

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