Volkswagen AG, Europe’s largest automaker, predicted a first-quarter loss and German rival BMW said earnings fell after it set aside money for potential defaults by car buyers as the global recession erodes sales.
Bayerische Motoren Werke AG, the world’s biggest luxury-car manufacturer, said annual profit slumped as the company booked charges for bad debts and slowing sales of used BMWs. Volkswagen Chief Executive Officer Martin Winterkorn said 2009 “will be one of the most difficult years in the company’s history.”
Carmakers in Europe are likely to build 25 percent fewer vehicles this year as sales fall 20 percent because of the recession, the European Automobile Manufacturers Association estimated on March 5. Volkswagen is cutting 16,500 temporary jobs and restraining production. BMW eliminated 4,000 jobs last year and will trim a further 1,000 in 2009.
“No one can escape the crisis, not even VW,” said Sven Diermeier, an analyst at Independent Research GmbH in Frankfurt. “The first quarter is grim for everyone, especially BMW and other luxury carmakers.”
BMW said net income plunged 89 percent to 330 million euros ($422.2 million) last year. Analysts polled by Bloomberg had estimated profit of 1.02 billion euros. Revenue declined 5 percent to 53.2 billion euros.
Volkswagen Predicts Declines
With deliveries projected to drop 10 percent from 2008’s record of 6.23 million, Volkswagen’s earnings “will not reach the high level of previous years,” the Wolfsburg, Germany-based company said today in a statement. At the same time, VW is targeting a larger market share as sales fall less steeply than the industry’s. It predicts a profit for the full year.
BMW rose 46 cents, or 2 percent, to 23.40 euros in Frankfurt trading. The stock has risen 8.3 percent this year. Volkswagen gained 2.40 euros, or 1.1 percent, to 213 euros, paring the decline this year to 15 percent.
“Over the course of the year, VW should perform noticeably better than its rivals,” Independent’s Diermeier said. “They have the broadest model mix and a balanced global presence, key assets that will make the difference in this bleak environment.”
BMW took 1.97 billion euros in provisions in 2008 for bad customer debt and declining values of vehicles returned on lease, incurring costs of 931 million euros in the fourth quarter alone. Cash on hand increased 86 percent to 8.11 billion euros.
“We prepared ourselves early on and swiftly for severe business conditions,” Chief Executive Officer Norbert Reithofer said in a statement.
The Bloomberg Europe Auto Manufacturers Index of seven automakers, including both of the German automakers, has declined 15 percent this year and 36 percent in 12 months.
“There’s no denying that this crisis will leave its mark on us,” Volkswagen Chief Executive Officer Martin Winterkorn said at a news conference today in Wolfsburg.
Net income dropped to 955 million euros from 1.22 billion euros a year ago, Volkswagen said today, with the fourth-quarter decline slightly outpacing the year’s drop. Full-year operating profit fell 24 percent to 1.4 billion euros. Deliveries in the first two months of 2009 slumped 15 percent to 809,200 vehicles.
As sales drop, group investment may be trimmed by 2 billion euros this year, Chief Financial Officer Hans Dieter Poetsch said, without giving specifics.
Industrywide car sales in Europe plunged 27 percent to the lowest in two decades in January and contracted 37 percent to a 28-year low in the U.S. Europe’s car market shrank 7.8 percent in 2008, while U.S. sales contracted 18 percent to a 16-year low.
“Economic turmoil for the automotive industry, especially in the second half of the year,” hurt VW earnings, Poetsch said.
BMW said it will shave 500 million euros from labor costs this year after spending 455 million euros in 2008 to eliminate jobs. The 1,000 job cuts this year will be achieved by not replacing people who retire or quit.
The Munich-based automaker recorded a fourth-quarter loss of 718 million euros before interest and taxes.
“The headline numbers look awful,” said Max Warburton, an analyst at Sanford C. Bernstein Ltd. At the same time, “it looks excellent on cash flow,” said the London-based analyst, who recommends buying BMW shares.
The auto industry is pressing European governments and regulators for emergency help as the recession and tighter credit hurt demand. The euro-area economy will contract in 2009 for the first time since the single currency was introduced a decade ago, according to the European Commission.
EU countries are offering billions of euros in aid to carmakers and the European Investment Bank, the 27-nation bloc’s lending arm, is stepping up loans for auto research. On March 1, EU heads of government ruled out a centralized rescue program for the car industry while pledging more coordination of national initiatives such as fleet-renewal programs and a possible increase in EIB research loans.
The EIB approved 3 billion euros in loans today for car and truck manufacturers. BMW, Daimler AG, Fiat SpA, PSA Peugeot- Citroën, Renault SA and Ford Motor Co.’s Volvo Cars unit, as well as truckmakers Volvo AB and Scania AB, will benefit.
Carlos Ghosn, chief executive officer of Renault and president of the European carmaker trade group, has asked that more be done at the European level. The French government is giving loans to Renault and rival Peugeot Citroen, the continent’s second-largest carmaker.
The automakers’ woes are increasing pressure to merge or at least cooperate, according to analysts and auto executives including Fiat CEO Sergio Marchionne. Fiat is planning to take a 35 percent stake in Chrysler LLC and share technology and models.
German automakers have eschewed interest in the assets of U.S. automakers in Europe. General Motors Corp., which like Chrysler has received billions of dollars in U.S. aid and wants more, is seeking European government help for its German Opel unit. GM’s Saab division in Sweden seeks bankruptcy protection.
Porsche SE, maker of the 911 sports car, is increasing control of Volkswagen as it seeks to build a 75 percent stake and bring VW’s cash flow into its books.
VW said today it has no plans at present to merge Swedish truckmaking unit Scania AB with MAN AG. Synergies between the two should be used “in other ways,” Poetsch said.
Volkswagen aims to cut inventories across its nine-brand group to about 100,000 vehicles by the end of March. The company said it intends to avoid reducing weekly working hours in the second quarter.
Volkswagen resumed production at five of its nine German factories on March 1 after shuttering the plants for a week, a move that affected two-thirds of its 92,000-strong German workforce. The closures came on top of a three-day shutdown at the main plant in Wolfsburg, following an extension of Christmas holidays.
Group deliveries rose 0.6 percent last year to a record 6.23 million vehicles as the Audi and Skoda divisions added models. The carmaker aims to sell 6.6 million Volkswagen-brand vehicles by 2018, versus 3.67 million last year. The brand’s operating profit in 2008 rose 40 percent to 2.7 billion euros, the biggest gain of any of Volkswagen’s divisions.
VW raised the 2008 dividend on its common stock to 1.93 euros a share from 1.80 euros in 2007. BMW said today it plans a dividend of 30 cents a share for the full year, down from 1.06 euros for 2007.
“We want to pay a dividend even in difficult economic times, demonstrating both the confidence we have in our operating strength and the interest in our shareholders,” CEO Reithofer said.