BMW Targets 2011 Profit Growth on Luxury Sales Amid Rising Output in China

Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury vehicles, aims this year to beat 2010’s record results, buoyed by revamps of the X3 sport-utility vehicle and 6-Series coupe.

The carmaking division will probably exceed the earnings before interest and taxes margin of 8 percent of sales reported in 2010, the Munich-based company said today. BMW began rolling out the overhauled X3 in January and started sales earlier this month of the refurbished 6-Series convertible, which will be followed by the coupe version in the fall, it said.

Chief Executive Officer Norbert Reithofer said at a press conference today that BMW is “closely watching” how the after- effects of the March 11 earthquake in Japan influence operations in Asia, including China. Over the coming days, the manufacturer will evaluate its direct and indirect suppliers in Japan to ensure that BMW can maintain its own production, said Herbert Diess, the German carmaker’s purchasing chief.

“No one knows how the situation will further develop” in Japan, Reithofer said. “It is extraordinarily difficult to shift to everyday business after the shocking events.”

The 43,644 BMW and Mini models that the manufacturer sold in Japan last year represented 3 percent of the company’s worldwide deliveries of 1.46 million vehicles. Fewer than 2 percent of components were obtained from Japan, Diess said.

Photographer: Guenter Schiffmann/Bloomberg

Bayerische Motoren Werke AG employees weld body parts on a BMW 6 Series cabriolet automobile at the company's factory in Dingolfing. Close

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Photographer: Guenter Schiffmann/Bloomberg

Bayerische Motoren Werke AG employees weld body parts on a BMW 6 Series cabriolet automobile at the company's factory in Dingolfing.

Shares Fall

BMW dropped as much as 6.8 percent to 52.01 euros, the biggest intraday decline since Nov. 3, 2009, and was down 4.8 percent as of 2:11 p.m. in Frankfurt trading. European stocks slid as concern grew that a Japanese nuclear power plant damaged by the March 11 earthquake will leak radiation. Germany’s benchmark DAX Index (DAX) fell as much as 5.6 percent.

Analysts expect BMW to record a 13 percent increase in net income to 3.64 billion euros ($5.05 billion) in 2011, according to the average of 13 estimates compiled by Bloomberg. The carmaker is targeting record deliveries of “well” more than 1.5 million vehicles this year and all-time highs for the BMW, Rolls-Royce and Mini brands.

“Earnings will likely increase more this year than in 2012,” when BMW’s product lineup will be a bit older and facing competition from Daimler AG (DAI)’s Mercedes-Benz brand and Volkswagen AG (VOW)’s Audi, said Alexis Albert, a London-based analyst at Nomura Securities with a “neutral” recommendation on the stock.

Chinese, Indian Plants

BMW is adding production in China and India to meet the record demand. The carmaker will assemble the X3 at its plant in Chennai, India, starting in the second quarter as it expands capacity to 10,000 vehicles a year from 8,000. A new factory in China will build the X1 compact SUV starting next year.

Further production sites, including new facilities in South America, are being considered as BMW strains to keep up. A decision on expanding in Brazil will be made this year, Frank- Peter Arndt, BMW’s production chief, said at the news conference in Munich.

The carmaker reported record net income of 3.23 billion euros in 2010, a 15-fold increase from 2009, as new models helped BMW recover from the global recession. Demand for the overhauled 5-Series model rose 36 percent after an extended version for China was added to the lineup, while the X1 sold more than 100,000 units in its first full year.

“Handling the level of demand has been a tour de force for our international production network,” Reithofer said at BMW’s annual press conference in Munich. “At the end of the year, we had about 100,000 units more on the books than originally planned.”

Pay Raise

The manufacturer raised Reithofer’s pay and bonuses by 66 percent last year to 4.3 million euros, according to the 2010 annual report published today. Combined compensation for BMW’s seven-member management board increased 70 percent to 18.2 million euros.

Gains from foreign-exchange fluctuations this year will probably contribute a “low three-digit” million euro sum, while profit will probably be burdened by higher raw material costs in a similar range, Chief Financial Officer Friedrich Eichiner said at the press conference. The raw material costs will be more than compensated by productivity gains, BMW executive Diess said.

Industry Hiring

Luxury-car manufacturers are forecasting sales gains this year because of higher spending in the U.S. and growing wealth in China, the two biggest car markets. Daimler, whose Mercedes- Benz division ranks second to BMW in worldwide sales, plans to recruit more than 10,000 employees this year, including staff for a new car factory in Hungary. Volkswagen is adding shifts to meet demand, Chief Executive Martin Winterkorn said March 10.

BMW, which employs almost 95,500 people, shed about 800 jobs last year through early retirement, buyouts and not replacing people who quit. BMW plans to hire about 1,300 people this year to support development, purchasing and sales, the company said Feb. 24.

The carmaker proposed a record dividend on March 10 of 1.30 euros per common share, more than four times the 30 cents paid the previous year. The higher payout comes even as BMW trails rivals in profitability.

Margin Comparisons

The auto division’s 8 percent Ebit margin in 2010 compares with 8.7 percent at Mercedes-Benz and 9.4 percent at Audi. BMW’s Ebit-margin target range for the carmaking operation has been 8 percent to 10 percent by 2012, and Reithofer said today that there’s a “good chance” it will maintain that rate of profitability beyond 2012.

The carmaker is expanding its lineup to reach a goal of selling more than 2 million cars and SUVs annually by 2020. It will introduce a plug-in hybrid version of the 5-Series for China at the Shanghai car show in mid-April, BMW said today.

The company said in February that it’s creating the “i” electric-car sub-brand, which will start in 2013 with the i3, a battery-powered city car previously known as the Megacity Vehicle. BMW is also planning the i8, a hybrid supercar based on the Vision Efficient Dynamics prototype. The sub-brand’s models will display a blue ring around the BMW logo.

To prepare for the electric-vehicle rollout, BMW is providing selected customers with Active E test car, a battery- powered version of the 1-Series compact, Reithofer said today.

BMW is also pushing into transport-related services and is experimenting with short-term rentals as it seeks to appeal to consumers more interested in gadgets like Apple Inc. (AAPL)’s iPhone than cars. The company started a $100 million venture capital unit and invested in the MyCityWay smartphone application.

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

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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