Those collusion fines are really taking a bite out of BMW’s plans for luxury market domination.
For the first time in a decade, BMW has posted a financial loss. The automaker's terrible 2019 Q1 might not come as a huge surprise given that auto sales have been falling across the board, but the dip in BMW’s trend line is far too drastic to be explained by a slowing auto market alone.
Bloomberg reports that the main reason for BMW’s loss is the fact it was forced to set aside $1.6 billion as a legal provision to cover European and Chinese fines for the automaker’s alleged collusion with its German competitors to delay the release of new emissions technology. But even if you ignore the huge chunk of change BMW had to set aside, earnings still fell by 42%, by €1.1 billion ($1.23 billion), in the first quarter of the year.
The reason for that dip has to do with price competition BMW faced in certain markets and with investments it made in new technology during the first three months of 2019. It’s unclear what those investments were for, but given the automaker’s commitment to work with Daimler on autonomous technology as well as the glut of new models its recently released - think the X7, 8 Series, Z4, and upcoming 3 Series - it’s easy to see how cash supplies may have been spread thin.
In order to get back into the profitable black, BMW announced a €12 billion ($13.4 billion) savings plan that involves slashing models and cutting the time it takes to get new vehicles to production. Not all is bleak though, because the momentum BMW built through its investments could culminate into a wave of sales for the second half of 2019.
"We expect the first half-year to be slightly weaker overall,” said BMW's Chief Financial Officer Nicolas Peter. The expected loss during 2019’s Q2 should be a result of model changeovers impacting sales and raising costs, but in regards to the second half of 2019, Peter said, "We expect the second half-year to benefit from the strong product momentum.”
That momentum will come from sales of the new 3 Series and the X7, the latter of which is flying off dealership lots and exceeding expectations, according to BMW CEO Harald Krueger. If BMW can ride out this low period, which could be exacerbated by renewed trade tensions between the US and China, it may stand to get back on top and beat Mercedes for the crown of #1 luxury automaker.