BMW Sees `Fierce' Competition Holding Back 2015 Profit Gains

BMW Beats in 3Q Amid Volkswagen's Emissions Scandal
  • Luxury-car leader sees costs rising for staying competitive
  • BMW's margin on cars narrowed to 9.1 percent of sales

BMW AG cautioned that “fierce” competition and higher spending levels will hold back profit gains this year, as aging models caused profitability to slide in the third quarter.

Slowing sales growth in China and pressure from rivals such as Mercedes-Benz are putting the world’s biggest maker of luxury cars on the backfoot. The company stuck to a goal of achieving a fifth consecutive year of record profit, but said growth will slow as costs to remain competitive climb.

“We are working hard to reach these targets, though we are faced with challenges in a number of markets,” including slower growth rates in China, Chief Financial Officer Friedrich Eichiner said Tuesday on a call with reporters.

BMW is locked in a battle maintain the lead in global luxury-car sales over Daimler AG’s Mercedes and Volkswagen AG’s Audi. While BMW is set to keep a slim advantage this year, its growth has slowed, and margins have shrunk as it revamped the likes of the X1 sport utility vehicle and 7-Series sedan. BMW’s 9.1 percent return on carmaking for the quarter slipped from 9.4 percent a year earlier.

Share Drop

BMW fell as much as 1.5 percent to 92.94 euros and was down 1.4 percent at 1:46 p.m. in Frankfurt. The stock is down 24 percent from an all-time high in March.

Amid expansion by Mercedes, Volvo and Alfa Romeo, the Munich-based company also faces the end of robust growth in China, BMW’s biggest single market. Industrywide deliveries there rose 3.3 percent during September, snapping a three-month streak of declines, following government stimulus measures.

Mercedes’s global deliveries beat both BMW and Audi for the third consecutive month in September and gained 16 percent in the first nine months of the year. Mercedes has also defied the Chinese slowdown in car sales, with deliveries there rocketing 31 percent through September. That compares with global sales gains of 5.8 percent for BMW, as Chinese sales rose just 2 percent.

In addition to concerns about China’s slowdown, investors have been wary about the fallout from Volkswagen AG’s widening diesel scandal. BMW, which sells numerous diesel vehicles, hasn’t noticed a change in customer attitudes toward the technology, Chief Executive Officer Harald Krueger said on the call.

Profit Gain

BMW posted a surprise increase in third-quarter profit as demand for cars including the X5 sport utility vehicle rose. Earnings before interest and taxes rose 4.3 percent to 2.35 billion euros ($2.59 billion), counter to analysts’ expectations of a decline to 2.16 billion euros.

While the figures looked “slightly better than expected,” aging models like the 5-Series and 3-Series sedans “will stay under pressure” in 2016 and could cause the company to offer discounts, said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG.

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