BMW aims to save $5.4 billion per year with cost cuts

Article by Christian A., on June 19, 2014

BMW chief executive Norbert Reithofer has tapped management consultants from McKinsey to help estimate the cost cuts to be able to save between $4 billion and $5.4 billion (EUR3 billion to EUR4 billion) annually, according to Manager Magazin. The business magazine reported that Reithofer was disappointed with costs at its Mini brand and for the BMW 1-series compact car, citing company sources.

The cost savings are targeted towards maintaining BMW's high profitability despite heavy investments in new drivetrain technologies, production expansion in markets like the United States, Latin America and China.

The carmaker wants to boost its global sales to 2.5 million by 2016 from almost 2 million in 2013, as it tries to stave off growing challenges from Audi and Mercedes-Benz.

Manager Magazin reported that Reithofer aims to maintain the carmaker’s profit margin between 8 percent and 10 percent – its automotive operations logged a return on sales of 9.4 percent.

The Muenchner Merkur daily reported that BMW intends to trim EUR100 million ($136 million) of German labor costs annually starting next year. Arndt Ellinghorst, ISI Group's head of automotive research, quipped the reports underscore BMW’s target of focusing on profitable growth and sustaining a high margin level.

He said in an e-mail to investors that the move by BMW is a strong proof that the carmaker is “mindful of the risk of complacency." He remarked that BMW's r&d costs and capital expenditure will reach its acme this year, and then drop to 7 percent and 5 percent in 2015, to 5.5 percent in 2016. [source: Autoblog]

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