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ECONOMY

BMW blames crisis for failure to come up with 2009 forecast

German luxury car maker BMW said Wednesday the current economic crisis prevented it from giving a detailed 2009 outlook but insisted that its medium-term targets were achievable.

BMW blames crisis for failure to come up with 2009 forecast
Photo: DPA

“2009 will be a year of transition, for which no reliable forecast is possible at present,” BMW boss Norbert Reithofer told the group’s annual press conference in southern Munich.

BMW expected sales for the automobile sector as a whole to fall between 10-20 percent this year but forecast that markets would pick up again in 2010.

In the meantime, “we will tighten our belts,” said Reithofer, a decision that has already led to the elimination of 7,500 jobs at the company and meant a substantial 2008 pay cut for himself and others.

BMW’s annual net profit lost 89.5 percent to reach €330 million ($430 million), while sales slipped by four percent to 1.4 million vehicles.

Reithofer took a pay cut of more than one-third as a result.

“The sharp drop in 2008 earnings has financial consequences: a member of the BMW board must renounce around 40 percent of his annual salary,” he told media.

According to the group’s annual report, Reithofer’s pay fell by 39.5 percent to €2.3 million.

Executive pay is a controversial issue in Germany, and draft legislation that would tighten the framework on salaries was approved by the government last week.

Workers would also see their salaries cut however, with those covered by a collective wage agreement reduced by 10 percent.

Meanwhile, German rival Daimler has also declined to give a detailed outlook for 2009, saying only that sales would fall from the level posted last year.

Profits at both automakers plummeted in 2008, especially in the last quarter after US investment bank Lehman Brothers went bankrupt, plunging financial markets into fresh turmoil.

BMW nonetheless reiterated 2012 profit targets that were first outlined in late 2007 as part of a group strategy dubbed “Number One.”

The plan’s main goal is a return on sales of between eight to 10 percent, but the BMW boss said Wednesday he now expected the unit sales target of 1.8 million vehicles set “before the crisis” to be at least 100,000 cars fewer.

He stressed that it was very hard at present to give firm forecasts.

In afternoon Frankfurt trading, BMW shares fell by 2.43 percent to €22.29 while the DAX index of German blue-chips was essentially unchanged overall.

To meet its return on sales goal, BMW planned to exceed an initial reduction of €4 billion in material costs, part of a wide-ranging cost-cutting target of €6 billion.

Cutbacks on personnel costs are expected to generate up to €500 million in savings each year from 2009.

Reithofer said he wanted to “preserve the BMW group’s independence,” nipping rumours of a tie-up with either Daimler or the French group PSA Peugeot Citroen in the bud.

BMW did not seek any cross shareholdings, finance director Friedrich Eichiner added.

But BMW and Daimler cooperate already in the purchase of materials and parts, and “we will extend this cooperation and progressively buy more and more parts and components together,” Reithofer said.

BMW also works with PSA to make motors for Mini models.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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