VW Says Profit Won’t Grow as BMW Sees Global Economy Woes

Volkswagen AG and Bayerische Motoren Werke AG predicted a “difficult” 2013 as the European auto market contracts, vehicle prices in the region drop and growth in China slows.

VW fell to almost a four-month low after Chief Executive Officer Martin Winterkorn said the automaker, Europe’s biggest, is confronting “tougher competition and difficult economic conditions.” BMW, the world’s largest luxury-vehicle manufacturer, sees conditions as “likely to remain challenging in many markets,” CEO Norbert Reithofer said.

Industrywide car sales in Europe, already at a 17-year low in 2012, fell in January to the least for that month since records began in 1990, according to the ACEA trade group. BMW and VW have both been counting on Chinese and U.S. growth to offset the contraction in their home region. Munich-based BMW said today profitability at its automaking unit narrowed last year, and analysts estimate earnings will drop in 2013.

“Europe is not the only market where conditions are deteriorating,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “Growth in China declined to a one-digit percentage rate last year, and the U.S. market will probably level off in 2013. At the same time, costs to expand sales and services organizations are rising.”

2014 Forecast

Volkswagen, whose Audi brand ranks second to BMW in global luxury-vehicle sales, will post an increase in earnings before interest and taxes in 2014 after profit this year matches the 2012 figure, Winterkorn said today at a press conference at VW headquarters in Wolfsburg. Daimler AG, which owns the Mercedes-Benz luxury-car marque, also forecast last month that operating profit in 2013 will remain unchanged from last year.

BMW, which said it expects to release more forecasts for 2013 on March 19, reiterated today that it’s planning on a third consecutive record this year in annual deliveries.

Vehicle prices in Europe have been declining amid carmakers’ unsuccessful attempts to stem the market decline, a strategy that has led to losses at Paris-based PSA Peugeot Citroen and the regional divisions of General Motors Co. and Ford Motor Co. Discounts in Germany widened to an average 11.8 percent of the list price in January from 11 percent a year earlier, according to Autohaus PulsSchlag industry magazine.

“Pricing will remain tough, because the market in Europe is going down,” and there are discounting pressures in other regions, Christian Klingler, VW’s head of sales, said today at an analysts’ conference in Wolfsburg.

Stock Falls

VW fell as much as 3.8 percent to 160.10 euros, the lowest intraday price since Nov. 23, and was trading down 1.2 percent at 3:41 p.m. in Frankfurt. BMW fell 0.3 percent to 71.05 euros.

“Investors seem to be questioning if VW is really as price disciplined as claimed,” David Arnold, a sales specialist at Credit Suisse in London, said today in a report to clients.

BMW reported a 3.5 percent increase in full-year earnings before interest and taxes to 8.3 billion euros ($10.7 billion). Ebit at the carmaking division increased 2 percent, while earnings as a proportion of sales declined to 10.9 percent from 11.8 percent in 2011, the company said today in a statement. That compares with an 11 percent margin posted by Audi in 2012.

China’s Role

Audi and Mercedes-Benz both have targets of taking the top luxury-car delivery spot from BMW in coming years. China is key to their growth plans, and the country is also part of VW and GM’s strategies for world car-market dominance. Volkswagen plans to add as many as seven factories in China by 2018, the German company’s target year for becoming the world’s No. 1 carmaker, Winterkorn said today.

China’s passenger-car market expanded 7.1 percent last year to 15.5 million vehicles, and growth may accelerate in 2013 to 8.5 percent, according to the country’s vehicle-manufacturers’ association. That compares with jumps of 33 percent in 2010 and 53 percent in 2009.

“There’s still enormous potential in China, but the market has slowed from double-digit growth to single digits, and that will remain so in the future,” the Center of Automotive Management’s Bratzel said. “The risk of over-dependence and overcapacity naturally rises with such a plan. It’s up to VW to manage that.”

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