BMW CEO warns that company could lose money in 2009

[Andrew 30]

BMW CEO Norbert Reithofer said today that the automaker could lose money this year if the current global sales downturn continues. Reithofer declined to give any earnings outlook for the full year but said that it expects global auto sales to decline between 10 and 20 percent.

“For 2009, the largest risk is the collapsing market. If revenues fall more than 20 percent, you lose money,” Reithofer said at the company’s annual earnings conference, reports Automotive News.

Reithofer said that after the inevitable decline this year, sale volumes will pick up again in 2010.

BMW Group’s sales dropped 24.3 percent to 150,838 units in January and February. During the last months of 2008, BMW sales declined 4.3 percent, its first annual drop since 1993.

[Mike.Gayner 0]

Auto sales are optimistically looking at declines of 10-20%, but BMW and other makers in the luxury market are likely looking at far larger declines. This article interested me enough to take a look at BMW's latest annual results (2008), which are not promising. BMWs gross margin is low and declining, and they took a huge hit in 2008. To say they "could lose money" in 2009 is an understatement to say the least - the economic climate has shifted dramatically since year end 2008, and losses this year are likely to be very large. The only reason a company like BMW doesn't release earnings guidance is when the result is going to be extremely poor.

Concerningly, their balance sheet is not particularly strong either, with negative working capital. Combined with precarious cashflows and it's actually a surprisingly fickle company. I guess I always pictured BMW as such a powerful entity that I wouldn't expect their financials to be in such poor shape. Maybe I'm missing something obvious, though, as the market values them highly with a PE ratio of almost 50.

I would look seriously at shorting their stock if I were in the market.

Edited April 8, 2009 by Mike.Gayner