BMW issues profit warning as 8,000-job-cut restructuring bites, margin could dip below zero

German carmaker BMW has cut its profit outlook for the second time in a year, saying the costs of a restructuring programme mean its profit margin this year could fall to between -0.5% and 0.5%. At the beginning of the year, the company had still considered a margin of 4-6% possible.

The restructuring includes 8,000 job cuts in BMW's home market. BMW is the latest western carmaker to downgrade its outlook in the face of competition from China; Mercedes-Benz cut its profit outlook last week. Western automakers have struggled to keep pace with lower-cost domestic rivals in China, which has led to reduced sales there and a rise in exports to Europe.

BMW reported an 11% drop in third-quarter pre-tax earnings on Wednesday to €2.1bn. Sales in China fell 22% in the first nine months of the year, though BMW said this was in line with the broader downturn in that market.

Chief executive Milan Nedeljković said: “Current developments in our industry call for decisiveness and swift implementation. We will therefore specifically intensify and accelerate structural measures.” China “remains a key focus”, he added, with the group's Neue Klasse revival of its model offering beginning in China this month with the launch of the iX3.

Because of the rapid launch of its new generation of electric vehicles, the company is writing off parts of its previous vehicle and technology generations and pricing in the costs of the redundancy programme, signalling a potential for losses.

The operating margin in BMW's core automotive business narrowed to 3.4%, beating analysts' forecast of 3.1% but declining from 5.2% a year earlier. Excluding restructuring charges, the margin would be above 2%, within its previous forecast range, the company said.

Revenue fell 6% to €30.4bn in the third quarter, hurt by the declining sales in China. BMW also said it planned to cut management functions more quickly under its restructuring drive.

The picture across the German car sector is mixed. Mercedes-Benz also reported lower profits in the third quarter, while Porsche rebounded slightly, but only after steep charges last year as it overhauls its model lineup and retreats from China. Volkswagen, too, faces painful restructuring costs caused by the rapidly changing market.