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BMW Earnings Up 14% Despite European Slump

But CEO warns of “headwinds” ahead.

by on Nov.07, 2012

BMW CEO Reithofer sees growing trouble ahead as the European market continues to struggle.

Despite the weakening European economy, BMW AG posted another strong quarter, with earnings up 14% but expected to slow in the months ahead.

The world’s largest premium automaker said its earnings before interest and taxes came to 2 billion Euros, or $2.6 billion, between July and September, led by growth in the U.S. and China as well as by the strong performance of its lending subsidiary. That was well ahead of the 1.74 billion Euros consensus from industry analysts. Net income was up 16%, to 1.29 billion Euros.

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Nonetheless, Chief Executive Norbert Reithofer warned that conditions were weakening across its home markets in Europe and could offset gains in other markets.

“Like the rest of the sector, we are now beginning to feel some headwind,” he said in a statement. “We have to acknowledge that we are all facing dramatic challenges and uncertainties in the global economy today.”

Finance chief Friedrich Eichiner said he still foresaw an increase in the full year operating profit at BMW’s core car division, predicting a 25% improvement in the fourth quarter.

“We have to expect that market conditions will continue to deteriorate and the competitive pressures increase further,” Eichiner said, using a common industry term for discounting. “You cannot entirely avoid them (high rebates) unless you are willing to surrender your entire market share,” he added.

In addition, BMW is using some generous lease terms to attract buyers in Germany. Leasing terms on the revamped 3 Series in Germany effectively equate to 26% off the list price of BMW’s single most important car – significant given the relative stability of BMW’s home market and the model’s recent launch in February.

For much of the year, BMW has been having significant success selling expensive cars like the 7-Series sedan to affluent Chinese and Americans – even as the European mass market struggles with massive overcapacity.

With factories running flat out to meet surging demand in China and the United States, where BMW has posted record sales, German premium carmakers were considered largely invulnerable to the crisis buffeting mass-market European car makers. But cracks are beginning to show.

Daimler’s Mercedes luxury car business last month warned it would fall nearly 800 million euros short of its earnings target this year and delayed plans to reach a 10 percent operating profit margin by 2013.

By comparison, BMW has been able to rely on its younger and more diversified product range as well as its fast-growing business in China, its single largest market, where vehicle sales volume rose by 39 percent during the third quarter.

BMW and Audi in China continue to outperform Mercedes, which delivered fewer cars to customers across the world than its two larger rivals.

BMW said its pretax profit would hit a record this year, while its EBIT margin in its core Automobiles division would reach the upper end of its 8-10 target range, compared with the 10.9% achieved so far this year.

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