BMW’s hopes for growth crushed by virus as sales, margins drop

By BLOOMBERG | 18 March 2020


MUNICH: BMW AG abandoned hopes for another record year in sales due to the coronavirus outbreak, predicting deliveries in 2020 will be "significantly below” last year’s levels and profitability at its weakest for years.

The maker of the 7 Series luxury sedan announced flexible working and shorter shifts in factories around Europe, while a site in South Africa will also be closed.

"We take our responsibility seriously, both when it comes to ensuring the protection and health of our employees and to achieving the best possible balance in terms of profitability,” chief executive officer Oliver Zipse said in a statement today.

European markets like France have already closed dealerships and other manufacturers including Volkswagen AG, Daimler AG, Renault AG and Peugeot-maker PSA Group have cut production. With other manufacturers including planemaker Airbus SE idling plants, Europe is facing its biggest industrial shutdown in decades.

That suggests even bigger declines ahead for car sales - even after passenger registrations slid 7.3% for the first two months of the year, according to the European automobile Manufacturers Association.

The ACEA in January predicted a 2% contraction in registrations for the year, but that was before the spread of coronavirus in the region really took off. Countries including Italy and Spain are now hotspots for the pandemic, with economies grinding to a halt. The February drop in car sales totalled 7.2%, the ACEA said.

The ACEA didn’t comment on any potential effects the virus could have on 2020 sales, though analysts have been making predictions.

Global production is likely to slump 16% for the full year, according to RBC. automakers face "a landscape of plummeting worldwide demand,” Bloomberg Intelligence analysts Kevin Tynan and Michael Dean said in a report this week.

Governments in countries from Germany to Italy and Spain have shut borders, closed restaurants and urged people to shelter to slow the spread of the disease, damaging economic growth. Daimler shares fell 5.6% in Frankfurt after the German company said late Tuesday it will suspend the majority of its production in Europe for an initial period of two weeks.

In addition to shutting production sites in France this week, Renault said two other factories in Morocco would be closed, affecting nearly 11,000 workers. The French company is also idling a Dacia site in southern Romania because of the virus, profit.ro reported, citing unidentified officials from the company.

VW, the world’s largest automaker, said it will halt production at its plants in Europe for at least two weeks. The company’s main passenger-car unit on Wednesday echoed comments from its parent, saying the business outlook is complicated by uncertainty triggered by the coronavirus crisis.

The brand that accounts for about half of VW’s global deliveries will close its European factories for 10 business days.

 

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