BMW is going into crisis with a large financial cushion. But even before Corona, BMW lost profitability.

When BMW invites you to the Annual General Meeting on May 14, many things are different than usual. For the first time, shareholders do not meet in the Olympic Hall, but on the Internet. And unlike in previous years, there are no more records to celebrate. “The situation remains serious,” said CEO Oliver Zipse, referring to the corona crisis that has paralyzed BMW in Europe and the USA since mid-March. The damage of the months-long standstill is not yet foreseeable.

CEO Oliver Zipse, unveils BMW i4 concept – photo: BMW

The slump in sales in the first quarter of 2020 was 20 percent, the second quarter is likely to get worse. In April alone, global sales were 44 percent below the previous year. “We are preparing that our business will continue to be affected for a long time to come,” said Zipse in early May.

For the time being, BMW hopes that the downward slide in summer will end. But even then, only a pre-tax annual profit remains “well below last year’s level,” the CEO warns. In 2019, this key figure had already dropped by 26 percent to 7.1 billion euros. At best, the yield in the auto business in 2020 will be between zero and three percent.

Zipse is on a rigid austerity course. Investments will be cut by a third and thus less than four billion euros. Vacancies will no longer be filled. There is a lack of work for the 126,000 employees worldwide : in Germany alone, 30,000 people were on short-time work in April.

The corona crisis caught a company running at full steam. In 2019, the group generated sales of more than 100 billion euros for the first time, which is a good seven billion more than in 2018. The automotive division is dominating with its three brands BMW, Mini and Rolls-Royce, which increased their sales by 2.2 percent overall.

The BMW Group has thus set itself apart from the global car market, which decreased by four percent in 2019. This was made possible by the model offensive: Between 2018 and 2020, around 60 percent of the model range was renewed. The much smaller Motorcycles segment increased its revenues by nine percent, and the Financial Services segment, which finances sales primarily through leasing and loans, was up almost seven percent. BMW was therefore able to expand its market share in all business areas.

All areas suffer

Nevertheless: Almost all of the success factors deteriorated significantly from 2018 to 2019. In the dominant automotive division, the operating result fell from just under seven to just 4.4 billion euros. The operating return on sales in the auto business, which is supposed to reach eight percent, is only 4.9 percent.

This slump in earnings in the core business cannot be compensated for by the financial result, since BMW records its profits from the Chinese joint ventures. The bottom line was that the group result dropped by 29 percent to five billion euros. The return on sales before taxes deteriorated by three basis points to just 6.8 percent.

The most important reason for the slump in earnings is a provision of over 1.4 billion euros that BMW formed in the first quarter due to an impending EU antitrust fine in the auto business. The Munich company is said to have made arrangements for the use of exhaust filters together with VW and Daimler ‧illegale. Free cash flow in the auto business, i.e. the balance of payment flows, has dropped to 2.5 billion euros. In 2016 the value was more than twice as high. The group is already taking countermeasures: An efficiency program is to unlock twelve billion euros by 2022 through savings in material, development, personnel and the introduction of new models.

Author: Nabeel K

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