Recovery in luxury car markets makes Bmw rethink its earnings target

Article by Christian Andrei, on August 29, 2010

BMW AG, the world's biggest premium automaker, said that it may have to rethink its earnings target by August. The recovering luxury car markets are being led by China.

For the first quarter, BMW posted a 2.7% margin at its automobiles segment after the division's earnings before interest and tax (EBIT) exceeded expectations by 35% to reach 291 million euros ($388 million).

The company conducted an inventory clear-out of its old BMW 5-series models before the next generation's European relaunch set in late March.

As a result, some analysts were led to incorrectly predict higher incentives in the first quarter, with a resulting drop in profitability. Credit Suisse analyst Arndt Ellinghorst said that BMW is massively restoring pricing.

From the company's latest monthly data, it shows that the discounts per unit in the US are currently 31% below the same level of last year.

This is before the new 5 series arrives in the US in June. He said that the market had been declining, seeing only a 3% EBIT margin at BMW's automobiles segment according to a Reuters poll. As a result, he stayed with his forecast for 4.1% this year.

Ellinghorst said that if BMW has a global record of 2,000-3,000 dollar -or euro- better transaction price per vehicle, then it should be considered a huge tailwind for these guys. He estimates that under these circumstances, it's possible for BMW to add almost 3.5 billion in earnings on sales of 1.35 million vehicles.

BMW got half a billion euros in group pretax profit, successfully achieving its 2010 target only three months into the year by considerably surpassing last year's figure. CEO Norbert Reithofer and finance chief Friedrich Eichiner have to clarify why the company, which provided a conservative forecast with only two weeks still to go in the quarter, had failed to give new guidance like Daimler.

Topics: bmw, sales

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