Nov. 3 (Bloomberg) -- Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, reported a 74 percent plunge in third-quarter profit as the recession sapped demand for higher-priced models.

BMW declined the most in 11 months in Frankfurt trading after net income fell to 76 million euros ($112 million) from 296 million euros a year earlier. Earnings before interest and tax dropped 86 percent to 55 million euros, below the 200 million-euro median estimate of 11 analysts in a Bloomberg poll.

Government vehicle-scrapping incentives have helped revive demand for cheaper models, such as Volkswagen AG’s 17,000-euro Golf, without boosting deliveries of higher-priced cars such as BMW’s 73,000-euro 7-Series sedan. The luxury manufacturer has responded to the sales drop by building fewer vehicles and reducing work hours for as much as one-quarter of its workforce.

“It’s a miss,” said Philippe Houchois, an analyst with UBS AG in London. “It’s a surprise because I thought that there would be a base effect because they cut production early.”

Munich-based BMW fell as much as 2.69 euros, or 8 percent, to 30.92 euros, the biggest intraday drop since Nov. 18, 2008. The stock was down 6.4 percent as of 12:26 p.m. local time.

Revenue fell 6.6 percent to 11.8 billion euros in the quarter, the company said today in a statement. Net income was equivalent to 12 cents a share, down from 45 cents.

Loss in Carmaking

BMW’s automotive division had an Ebit loss of 76 million euros, compared with a year-earlier profit of 141 million euros. That contrasts with the performance of Daimler AG’s Mercedes- Benz Cars unit, the world’s second-biggest luxury-vehicle manufacturer, which more than tripled Ebit to 355 million euros in the quarter.

“It’s still too early to give the all-clear for the world’s automobile markets,” BMW Chief Executive Officer Norbert Reithofer said in the statement, adding that the industry is likely to post a “gradual recovery” in 2010, when new models should boost sales and earnings.

BMW predicted that the introduction of the X1 compact sport-utility vehicle and the 5-Series GT crossover will lift deliveries in the fourth quarter. In October, vehicle sales will likely be unchanged from a year earlier, Reithofer said today on a conference call.

A rebound in China halted a sales slide in September, when deliveries increased 0.7 percent in the first gain this year and led BMW to end factory cutbacks. Its auto production declined 0.4 percent to 334,000 vehicles in the third quarter.

Mini, Rolls-Royce

The company, which makes Mini and Rolls-Royce vehicles alongside its namesake brand, anticipates that sales will decline 10 percent to 15 percent this year. Job cuts carried out last year will help BMW post a profit in 2009, it said.

“The measures we have put in place to increase efficiency and reduce costs are taking effect,” Reithofer said. The goal of achieving a profit in 2009 depends on auto markets remaining stable through the end of the year.

The company plans to continue offering workers buyouts and early retirement to further cut headcount, which declined by 1,600 this year, the CEO said.

Cash reserves fell 17 percent to 9.9 billion euros in the third quarter after BMW transferred 1.9 billion euros to its German pension fund. The company aims to have about 9 billion euros in liquid funds at the end of the year.

BMW, which also makes motorcycles, reiterated a margin target set two years ago of raising earnings before interest and taxes at its carmaking operations to 8-10 percent of sales in 2012 from 6 percent in 2007.

To achieve its 2012 goals, BMW will cut spending on supplies by “significantly” more than planned as it refreshes models that share more parts, Chief Financial Officer Friedrich Eichiner said on the conference call. The savings will be more than 10 percent above the targeted 4 billion euros, he said.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net.

Last Updated: November 3, 2009 06:57 EST