Rising costs and the subsequent squeeze on profit margins has BMW CEO Norbert Reithofer declaring war on costs: a nearly $5.5 billion war.
The Bavarian Motors boss wants to cut between $4 billion and $5.4 billion in costs to keep the German maker’s profit margins between 8% and 10% in the coming years. In 2013, BMW reported a margin of 9.4%.
One area of bloat is the Mini brand as well as the development of the 1-Series, which should see costs come down some as it’s in production now, according to multiple media reports. BMW said in a released statement would seek to lower annual expenses “by several hundred million euros a year.”
BMW plans to cut more than $135 million in labor costs, said Muenchner Merkur, a Munich newspaper, reported last month.
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While Reithofer expressed dismay, he has no official remedies for the company’s busted budgets so he’s brought in McKinsey & Co. to develop a plan that would run through 2020 to get those savings, Automotive News reported.
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The plan to reduce the company’s annual outlay comes as it’s also investing more and more in new drivetrain technologies, in particular the i-Series products, as well as trying keep up with Mercedes-Benz and Audi in the annual sales race worldwide.
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Despite reporting record sales and earnings in recent years, the call to remain lean is “also a strong proof that BMW is mindful of the risk of complacency,” said Arndt Ellinghorst, ISI Group’s head of automotive research, in an investor e-mail. He expects BMW’s research and development as well as its capital outlays to peak this year, then decline until 2016.