Due to the release of new car models, BMW's 2010 pretax profit is expected to increase significantly. With the improvement in the economy, corporate fleet sales at premium carmakers are seen to rise.
Fiat S.p.A. and other rivals, specifically with regards to volume, are reeling from the termination of the incentive program that had driven up the sales of minis and subcompacts in 2009.
During a news conference last Wednesday to announce its annual results, CEO Norbert Reithofer said that as the company works to hit profitability targets for 2012, it hopes to see visible progress starting this year.
Reuters had conducted a poll on 10 analysts and the results that were released last week show that the market anticipates pretax profit to increase to 1.45 billion euros this year from only 413 million in 2009.
Despite investors' expectations for a striking improvement, BMW shares didn't get a boost from the remarks. At 11:52 GMT, the stock was trading 0.6% lower compared with a 0.2% fall in the Stoxx European car sector index. Meanwhile, Morgan Stanley analysts said that they consider the 2010 outlook and fourth-quarter earnings "a relief."
They also said that market expectations were well underpinned. According to BMW, the release of the new 5 series sedan this month and the September debut of the Mini Countryman SUV would increase group vehicle sales to a "solid" single-digit rate to amount to more than 1.3 million vehicles.
BMW said that if the improvement in the economy is consistent and would continue until 2011, the company would see volumes grow next year. BMW also expects a corresponding increase in earnings.
BMW said that this year, its core automobiles segment is set to post an operating margin in the low-single-digit percentage range while maintaining the 1.46 billion euros in adjusted free cash flow that was generated in 2009.
The segment suffered a loss before interest and tax last year primarily because of a sudden drop in sales but 194 million euros from foreign exchange effects came about primarily because of a weaker pound. BMW expects that in 2010, earnings in its motorcycle and financial services segments would rise; however, it won't rule out more losses from bad debts after the ratio of non-performing loans in its portfolio soared 25 basis points to an abnormally high 0.84%.