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BMW Auto Margins Slip on Spending to Keep Ahead of Audi

BMW Auto Profitability Slips on Costs to Keep Ahead of Audi
BMW is introducing the 3-Series GT and the 4-Series coupe and is preparing to roll out its first electric vehicle, the i3 city car. Photographer: Valentin Flauraud/Bloomberg

Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars, reported a drop in profitability at its auto unit as it invests on expanding offerings to keep ahead of Audi in a tightening race for the sales lead.

Operating profit at BMW’s car division fell to 10.9 percent of sales last year, down from 11.8 percent in 2011, the Munich-based carmaker said today in a statement. BMW slightly trailed the 11 percent margin of Volkswagen AG’s Audi in 2012.

BMW is introducing the 3-Series GT and the 4-Series coupe and is preparing to roll out its first electric vehicle, the i3 city car. The expansion is aimed at securing a third consecutive year of record sales in 2013 and countering Audi, which trails the BMW brand by 407 car deliveries after two months in 2013. The investment comes as European car sales head for a sixth consecutive annual decline this year.

“Economic conditions are likely to remain challenging in many markets,” Chief Executive Officer Norbert Reithofer said in the statement. “The BMW group is preparing for tomorrow’s technological challenges and is setting the course for further growth and profitability.”

BMW dropped as much as 1.57 euros, or 2.2 percent, to 69.70 euros and was down 0.4 percent as of 1:10 p.m. in Frankfurt. The stock has lost 2.7 percent this year, valuing the company at 45.4 billion euros ($58.7 billion).

Decline Forecast

Earnings before interest and taxes edged up 3.5 percent to 8.3 billion euros in 2012, after a 14 percent profit surge in the fourth quarter. Ebit is forecast to drop to 7.99 billion euros in 2013, according to the average of 18 analyst estimates compiled by Bloomberg.

Ebit at BMW’s carmaking unit last year rose 2 percent to 7.62 billion euros. BMW has a long-term automotive profit margin target in the range of 8 percent to 10 percent of sales.

The German automaker is proposing a record dividend of 2.50 euros per common share for last year compared with 2.30 euros a year earlier. Net income in 2012 rose 4.4 percent to 5.12 billion euros, as sales advanced 12 percent to 76.8 billion euros.

To tighten its grip on the premium segment’s top spot, BMW appointed Peter Schwarzenbauer, the former Audi sales chief, to its management board to oversee the Mini, Rolls-Royce and BMW motorcycle brands as well as after-sales operations, the company said today.

Schwarzenbauer will take over from Harald Krueger as of April 1. Krueger is replacing Frank-Peter Arndt, who decided to step down for health reasons, as BMW’s production chief.

The company expanded its lead in the luxury auto segment with a 12 percent increase in sales to 1.54 million BMW-brand vehicles on demand for the new 3-Series, 1-Series compact and X3 sport-utility vehicle. Audi’s deliveries rose 12 percent to 1.46 million, while Daimler AG’s Mercedes-Benz, which has also vowed to take the segment’s top spot, sold 1.32 million cars, up 4.7 percent.

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