BMW plans multi-billion cost cuts program

BMW plans multi-billion cost cuts program

BMW CEO Norbert Reithofer has hired management consultants from McKinsey to help draw up cost cuts aimed at saving between €3 billion to €4 billion ($4 billion to $5.4 billion) a year, a German business magazine said.

Reithofer is disappointed with costs at the company’s Mini brand and for the BMW 1-series compact car, Manager Magazin said in a report today, citing company sources.

The cost savings are aimed at maintaining BMW’s high profitability despite the company’s growing investments in new drivetrain technologies, production expansion in markets such as the United States, Latin America and China, and increasing vehicle sales to new records.

BMW aims to boost worldwide vehicle sales to 2.5 million by 2016 from nearly 2 million last year. The company faces strong challenges from Audi and Mercedes-Benz, which both target BMW’s position as the top-selling global premium automaker.

Reithofer wants to keep BMW’s profit margin between 8 percent and 10 percent, the report said. Last year the company’s automotive operations had a return on sales of 9.4 percent.

Last month, Munich newspaper the Muenchner Merkur said BMW intends to cut €100 million ($136 million) of German labor costs annually from 2015 onwards.

Arndt Ellinghorst, ISI Group’s head of automotive research, said the reports highlight that BMW aims to focus on profitable growth and sustain a high margin level despite its record sales and earnings. “It is also a strong proof that BMW is mindful of the risk of complacency,” he said in an e-mail to investors.

Ellinghorst said BMW’s r&d costs and capital expenditure will peak this year, then decline to targets of 7 percent and 5 percent to 5.5 percent, respectively, until 2016.

BMW was not immediately available for comment.

Reuters contributed to this report