BMW profit slumps on weaker markets, US$1.6 billion provision

BMW reported a loss for the first time in a decade due to poor sales and legal provisioning.

MUNICH: BMW AG’s automotive division swung to a loss for the first time in a decade as car prices slumped and a legal provision over alleged collusion ballooned to 1.4 billion euros (US$1.6 billion).

Excluding the provision, earnings at the carmaker’s main unit fell by 42% to 1.1 billion euros. In addition to the fine, the luxury carmaker said in a statement that price competition in some markets and spending on new technology shrank profit.

To deal with the pressures, BMW in March announced a 14 billion-euro savings plan, culling models and cutting development time. While the second half of the year should improve with sales of new 3-Series and X7 sport utility vehicle, trade tensions are on the rise again.

BMW will contest the allegations on collusion on cleaner-emission cars by the European Commission with all legal means possible, it said.

“We are experiencing the impact of high levels of expenditure in numerous areas affecting the entire automotive sector,” Chief Executive Officer Harald Krueger said. We “expect business to benefit from tailwinds, especially in the second half of the year, as numerous new models become available.”

Group earnings before interest and tax declined 78% to 589 million euros.

More tariffs?
US President Donald Trump on Sunday threatened more tariffs on Chinese goods that could prompt retaliatory actions. BMW exports SUVs from its plant in the US to China that are already hit with increased tariffs.

BMW caps a mixed earnings season for carmakers. Volkswagen AG’s profit excluding special items rose, defying falling sales in China while Daimler AG, reporting a 16% profit decline, warned it would be tougher to meet annual targets.

BMW reiterated its outlook for the year, expected earnings before tax to fall “well below” the year-ago level while deliveries will rise slightly. The automotive return on sales is expected to drop to between 4.5% and 6.5%, from an already lowered target of 6% to 8%