BMW wants more Mexican output to cut reliance on China

Article by Andrew Christian, on March 26, 2015

A decision by German luxury carmaker BMW to have a new plant in Mexico was prompted by a desire to cut its dependence in China, according to chief executive Norbert Reithofer. He remarked that such increased exposure would serve as counterweight to China, noting that the annual growth rate both in sales and profit in the country has been dropping.

He added that the contribution margins that BMW achieved three or four years ago in China are no longer possible, as seen in 2014. For 2015, BMW expects China to just post a single-digit percentage increase in sales volume after logging a 17-percent gain in the country sales in 2014 to 456,732 vehicles, accounting for around a fifth of BMW’s global volume.

“I believe that a further normalization of the (Chinese) market means this development will certainly continue,” Reithofer remarked. He noted that he views this situation as the group’s “next big challenge.” Particularly felling the pressure to put up the numbers is Rolls-Royce. The ultra-luxury segment in which the brand belongs suffered from a 32-percent drop in China last year.

Peter Schwarzenbauer, BMW board member in charge of Rolls-Royce and Mini, remarked that at the moment, the carmaker is building cars for China “only when there is a real customer order.” The drop has been ironic since there has been a surge in the number of people in China who can afford to purchase a Rolls-Royce.

The drop has been attributed to the fact that ultra-high net worth individuals in the country are not keen on attracting attention at a time when the government is currently implementing a crackdown of exorbitant spenders.

BMW Chief Financial Officer Friedrich Eichiner remarked that the country’s growth slows down, the competition between brands intensifies. BMW is planning to introduce three new locally built BMWs in China to improve its position, although such move could hurt its earnings since sales of locally built vehicle are split 50-50 with its Chinese joint venture partner.

Topics: bmw, mexico, production, china

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