BMW Q2 Earnings Slip on Costs for New Models

BMW, the world’s biggest luxury carmaker, warned on Tuesday that its financial forecasts for this year could be at risk from any further deterioration in the Chinese market, where its sales have begun to fall for the first time in a decade.

Sales of its main BMW brand cars grew by 4.9 percent on last year, while the company said it sold nearly a quarter more of its Mini cars. The sales in China have slowed to a halt and even went into the red for some manufacturers, mostly due to the recent stock exchange crisis.

A drop in sales in China and investment in new vehicles has hit German luxury auto maker BMW’s second-quarter profits.

The company said Tuesday that net profit fell to 1.75 billion euros ($1.92 billion) from 1.77 billion euros in the April-June quarter of past year.

BMW says that it will be shifting its marketing plan in China to focus on the youth segment and in-car innovations, instead of stretched wheelbases and luxurious rear passenger accommodation that is the norm over the past few years.

“If conditions on the Chinese market become more challenging, we can not rule out a possible effect on the BMW group’s outlook”, the company said.

The planned new 7-Series is part of BMW’s drive to refresh its model line.

The profit margin before interest and taxes, a key earnings figure, fell to 8.4 percent in the quarter from a strong 11.7 percent in the year-ago quarter. Luxury-car manufacturing competitors such as Daimler AG are already winning buyers with new products such as the latest generation of the Mercedes C-Class mid-size sedan.

BMW’s margin trailed Mercedes-Benz and Audi, which reported respective returns on sales of 10.5 percent and 9.8 percent.

BMW shares traded down 1.6 percent at 90.13 euros in morning trading in Europe. “It’s not just a BMW issue, but it’s still going to be a wakeup call”.

“The Chinese market is at a crossroad for fundamental changes,” said Karsten Engel, BMW China’s chief executive officer, to reporters in Shanghai.

The quarterly report is BMW’s first under CEO Harald Krueger, 49, who succeeded Norbert Reithofer in the top post in May.

Overall, personnel costs and spending on new models rose in the quarter while greater reliance on sales of smaller compact cars weighed on earnings and contributed to the squeeze on the group’s operating profitability from its auto-making business.