BMW SLASHES 2008 OUTLOOK
Frankfurt/London - BMW cut production and scrapped earnings forecasts on Tuesday as quarterly profits slumped 60 percent but bombed out car shares were among top gainers as shares rallied across Europe.
The troubles facing the world's biggest premium brand automaker followed the worst month in 25 years for the industry in the United States, BMW's largest market, including big setbacks for US giants General Motors and Ford.
Both BMW and rival German luxury carmaker Mercedes-Benz, a unit of Daimler, have cut their 2008 earnings outlook for the second straight quarter amid tumbling markets and a rapid decline in the resale value they receive for vehicles coming off lease in the United States.
Only Audi has been spared the worst of the pain, since it relies much less on the US market.
Volkswagen's premium brand delivered a 9% third-quarter operating margin that humbled Mercedes-Benz Car's comparable 1% return on sales and a 1.3% EBIT margin for BMW's Automobile division.
Sagging demand means BMW now expects its first annual decline in retail sales since 1993, when excluding its former unit Rover.
Yet BMW shares closed up nearly 12% among hefty gains in the sector and the broader equity market.
"The stocks have been so badly beaten up that when the market rebounds, high beta cyclicals like auto stocks but also MAN surge. But the game will start over anew tomorrow," Sal Oppenheim's Christian Breitsprecher said.
"Auto stocks may be trading at historically low valuations, but the sector is also facing historic challenges," he added.
Elsewhere in the sector PSA Peugeot Citroen closed up 6%, Renault finished up 9.7% and Daimler was up 4.7%. Among suppliers there were sizeable gains too, with Michelin rising 9%, Valeo up 10.2% and GKN up 11.5%.
Automakers are doing what they can to cut output and many are gearing up for a price war as they try to reduce excess inventories before year-end.
"Difficult business conditions and the volatile climate on the market mean that it is as good as impossible from today's perspective to make a reliable prediction of the earnings outcome for 2008," BMW chief executive Norbert Reithofer said.
"We will, however, achieve a result that is clearly positive," he said. BMW had previous forecast a group pretax margin of at least 4% this year.
BMW fell well short of analysts' expectations for the three months to September 30, with earnings before interest and tax (EBIT) down 60% to 387 million euros ($498.4 million) versus an average estimate of 574 million from a Reuters poll of 17 analysts.
Revenues fell 8.6% to 12.59 billion euros and BMW said it would chop production by at least 40 000 cars, adding to an earlier cut of 25 000. The cuts represent 5% of 2007 output.
BMW also took 342 million euros in risk provisions for bad loans and bigger-than-expected declines in the value of vehicles coming off lease in the third quarter and said it could not rule out more this year.
"It's telling that even with just two months left to go, the uncertainty is so great BMW prefers not to give any real 2008 guidance at all," M.M. Warburg analyst Marc-Rene Tonn said.
Overall US auto sales in October fell by 32% to their lowest ebb since February 1983.
That included a 45% drop for GM and a 30% fall at Ford. BMW's sales fell by 8.5%.
On a per capita basis, GM said October was the weakest month for US auto sales since the end of World War Two.
Europe also suffered, with industry wide sales in Spain off 40% and down 19% in Italy.
Like BMW, Ford said it was eyeing production cuts, noting it could reduce output in coming weeks by cutting overtime and suspending work at some plants.
An aggressive round of discounting also looms this month and next as automakers prepare to clear 2008 model vehicles using cut-rate financing and other incentives.
GM said it would roll out a "Red Tag" sale with lower prices and cash-back offers starting on Tuesday.
Toyota Corp, the world's biggest selling automaker, extended a zero-percent financing offer it launched in October and Japanese rival Nissan Motor launched a zero-percent offer of its own.
Honda Motor Co chief financial officer Yoichi Hojo said Japan's number two automaker would offer lower financing terms, too.
"Competition is heating up dramatically," he told Reuters in an interview. "It'll be difficult to expect a recovery in North America and Europe in the next six months ...And it's even more difficult to predict what path the emerging markets will take."
BMW shares fell initially before mounting a rebound, standing up 11.6% at 22.9 euros.