BMW bets on doubling of luxury car sales to boost margins

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By Edward Taylor

MUNICH (Reuters) – BMW (DE:) aims to double sales of large luxury cars next year from 2018 levels to help revive profit margins hit by investments in new technologies, Chief Financial Officer Nicolas Peter said on Thursday.

BMW hopes to sell around 135,000 premium models such as the i8, 8-series, X7 and 7-series in 2020, up from around 65,000 in 2018, Peter told reporters in Munich.

“We want to grow in the coming years and we are convinced the premium segment will outperform the overall market – and that we will outperform the market,” he said.

Luxury models deliver higher than average profit margins, and will help BMW to return to an operating margin of between 8% and 10% in its automotive division, Peter said.

The costs of developing smaller cars, including an electric Mini, have eaten into profitability at the German automaker.

In March, BMW warned it expected group pretax profit to fall by more than 10% this year and announced a 12 billion euros ($13 billion) savings and efficiency plan to help offset higher technology investments.

BMW has no plans for forced redundancies in 2019 or 2020 among its German full time employees, the carmaker said. The company will, however, seek cost cuts through early retirements and reducing employees’ annual bonuses.

“The annual payment needs to be recalibrated to a sensible level. It has already been adjusted for the management board,” Peter said, adding the level depended on the outcome of negotiations with worker representatives.

To lower development costs for electric and driverless cars, BMW will pursue alliances, such as a plan to make a low-cost electric car with Chinese partner Great Wall (SS:).

“It is easier to build a large electrified vehicle profitably than a small one,” Peter said, adding the project with Great Wall remained on track.

BMW wants to remain in the city car segment with its Mini brand, even though smaller vehicles tend to deliver a lower margin and customers are buying ever-larger vehicles.

“Mini is a strategic part of BMW,” Peter said, adding smaller vehicles were gaining in relevance among urban customers seeking to downsize.

BMW reiterated it would close its Oxford, southern England, plant – where it builds the Mini – on Oct. 31 and Nov. 1 to prepare for potential disruption to trade should Britain leave the European Union without a withdrawal agreement.

“We are prepared for various scenarios,” Peter said, adding that specific vehicle parts had been stockpiled to enable a resumption of production once it became clear whether vehicles would be subject to a 10% tariff after Brexit.

“We will pass on part of the cost of these tariffs to customers,” Peter said, adding Mini prices would be raised.

BMW will gauge the impact of price increases before taking further steps, such as considering a shift in production of vehicles or components to plants outside the United Kingdom.

“It is too early to discuss such steps. We will have to see how demand develops first,” Peter said.