BMW Pledges to Defend Luxury-Car Market Lead Against Mercedes

  • Carmaker confirms 2016 forecast for higher deliveries, profit
  • BMW’s margin from carmaking climbs to 9.5 percent in quarter

Mercedes, BMW Wrangle for Top Luxury Car Spot

BMW AG pledged to defend its lead in the world’s luxury-car market in 2016 after being usurped by Mercedes-Benz in the first half, highlighting the challenge it will face in keeping both sales and margins up without a blockbuster new model.

“We intend to stay the leader on sales across our brands BMW, Mini and Rolls-Royce this year,” Chief Financial Officer Friedrich Eichiner said on an earnings conference call with reporters Tuesday. Eichiner emphasized profitability as much as deliveries, saying the company will stick to a target corridor of 8 percent to 10 percent of sales.

BMW is facing the end of its decade-long run as the biggest luxury carmaker, with Mercedes ahead after the first six months of this year thanks to the popular S-Class luxury sedan and a redesigned model lineup that fills every niche in the market. Beyond bragging rights, BMW needs to maintain momentum to finance a costly expansion into electric and self-driving cars after promising to introduce an autonomous vehicle by 2021.

BMW’s next important new model, the 5-Series business sedan, won’t come until 2017. The 5-Series will face off against the remake of the Mercedes E-Class introduced in March, after a new version of BMW’s top-of-the-line 7-Series struggled to compete against the Daimler AG unit’s S-Class. Another challenge has been U.S. customers’ shift toward SUVs, which has led to deeper discounts on the sedans at the core of BMW’s lineup. The carmaker’s U.S. sales dropped 9 percent in the first six months, falling more than 9,000 vehicles behind Mercedes.

Defining ‘Leading’

“BMW will struggle to maintain the leading position by sales because they don’t have any obvious blockbusters coming this year,” said Sascha Gommel, a Frankfurt-based analyst with Commerzbank AG. “That said, carmakers define ‘leading’ in a number of different ways, sometimes as it suits them.”

The shares fell 1.6 percent to 75.87 euros at 12:56 p.m. in Frankfurt. Daimler dropped 2.4 percent to 59.26 euros. BMW is down 22 percent this year, compared with a 5.2 percent decline in Germany’s benchmark DAX Index.

BMW Chief Executive Officer Harald Krueger provided a hint of how the company may define leadership in the future, saying the future viability of the company depends on “the strength of the brand and innovative drive” as well as its sales and financial performance.

Technology Investment

BMW is investing in technology to compete with new rivals including Uber Technologies Inc. and Tesla Motors Inc. The company is working with Intel Corp. and Mobileye NV on its self-driving car and on Tuesday highlighted an 87 percent first-half increase in the sales of its electric models, thanks in part to a new version of the i3 city car.

Second-quarter earnings before interest and tax rose to 2.73 billion euros ($3.05 billion) from 2.53 billion euros a year earlier. BMW kept a tight hold on costs to offset a reliance on less-expensive vehicles such as the X1 compact SUV to boost sales. The result comes after Daimler and Volkswagen AG beat expectations with earnings that excluded one-time costs. BMW’s figures included 472 million euros in warranty provisions, among them the cost of recalling vehicles with Takata Corp. air bags.

BMW’s return on sales from carmaking was 9.5 percent, compared with 8.4 percent in the same quarter last year. That compares with an operating profit margin of 10 percent for Mercedes and 7.6 percent for Volkswagen’s Audi. BMW confirmed its forecast of slight increases in deliveries and profit before tax this year.

“BMW delivered a solid result,” said Arndt Ellinghorst, a London-based analyst for Evercore ISI. “It wasn’t the kind of beat we saw from the others, but there’s a lot less volatility. They’ve had 25 quarters in succession of meeting their target corridor on profitability.”

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