Cost Cuts-BMW squeezed by Euro/Dollar exchange rate

[Kirby]

FRANKFURT (AFX) - Bayerische Motoren Werke AG will secure its earnings target through its cost cutting programme, chief executive Helmut Panke said according to an article to be published in tomorrow's manager magazin.

In an interview, Panke said the company has had to implement counter measures to meet the effects of the weak dollar, higher raw material costs and sharper competition, although he would not name an exact figure for how much BMW wants to save.

According to analysts, the negative effects on the company will amount to between 700 mln and 1.1 bln eur.

The savings goal is below that, Panke said.

Citing company sources, manager magazin said the auto maker wants to save costs in 2005 by around 0.5 bln euro.

Upon presenting its third quarter results, BMW reiterated its intention of matching last year's earnings. In 2004, net profit amounted to 2.2 bln eur.

 

[Bmw 325i 7803]

How is it going to cut costs? Cheaper materials and build quality? That would be the death of the company, I'd rather swallow a profit loss before I kill the reputation.

 

[bmw046series]

When they mean cost cutting it is excess costs the company takes in like cutting staff projects, etc. not necessarily production, they could never do that, they've tried it before it doesn't work.

 

[epj3]

hahahaha cost cutting, hahahhahahahahahahahaha. Weren't you guys making fun of infiniti for this in another thread?

 

[epj3]

they've tried it before it doesn't work.

Please explain when.

 

[epj3]

Kirby, you think this has anything to do with the cost cutting?

ONE-LINE SYSTEM PREPARES BMW MANUFACTURING FOR FUTURE
11/16/2005

Spartanburg, S.C -- Demolition begins today in the Z4 Roadster assembly area as BMW Manufacturing Co. moves into the final construction phase to convert from a two-line to one-line production system to prepare the factory for the future.

"The one-line system is an exciting development for our plant, and most importantly, for our future," said President Clemens Schmitz-Justen. "We will be better prepared to meet future market demands."

The one-line system will give the factory additional flexibility that will allow
seasonal fluctuation of models consistent with market demand, and the introduction of new models to markets in a shorter lead time.

The final construction phase will require an extended production interruption, beginning with the Z4 assembly area because it requires the most modification and that interruption began November 14. Production interruptions will occur in X5 body December 8 and in the paint shop, X5 assembly and support areas December 9.

The production interruption will be covered by a combination of 2005/2006 holiday and plant shutdown days so that associates will be paid for the extended time-off.

 

[Bmw 325i 7803]

When they mean cost cutting it is excess costs the company takes in like cutting staff projects, etc. not necessarily production, they could never do that, they've tried it before it doesn't work.

I have feeling they're going to try it again, it's no longer so much about quality and longevity as it is about profit. I wouldn't be surprised if this has something to do with their unionized plants and the greedy laborers...

 

[blondboinsd]

Yeah, I agree, I used to believe in Unions but now I know they just cripple the companies they represent, its really sad

 

[epj3]

Yeah, I agree, I used to believe in Unions but now I know they just cripple the companies they represent, its really sad

Well, not necessarily. If it weren't for unions in the history of the USA, we wouldn't have many labor laws that we have today. BUT I do think now-a-days the laws hold a company to certain standards, and unions only hurt the company and employees.

Like teacher unions...

 

[Kirby]

Kirby, you think this has anything to do with the cost cutting?

I would think so. Any time a manufacturer (of any product, not just cars) has an unused asset sitting idle, it is costing them money, both in real $$ and in unrealized profit. I do a lot of work in the MES arena (Manufacturing Execution Systems) and have seen the results. I did an equipment efficiency/downtime monitoring/reporting system for a local manufacturer, and they wound up saving $700K per year (no layoffs or staff reduction AND increased product quality) by realizing their shortfalls & becoming more efficient!

In a simple example, if BMW has 2 lines in the plant, and one is running under capacity (Z4 line no doubt!!) it could be running at 1/2 rate, or shutdown 2 days a week. By retooling all operations into one line, they can increase manufacturing capacity (time, floor space, workers, etc.) that was available only to the Z4 - those resources can now be used for any model, allowing great flexibilty to respond to demand. This is great when introducing a new product - it allows ramping up without building an entire new production line. As we know, new models are rumored for the plant.

Of course there is a tradeoff and potential downsides - all workers must be trained to build all cars, not just one or two models; if the line goes down ALL production is down.

Cost cutting does not necessarily mean a reduction in quality.

 

[bmw046series]

Long live Jimmy Hoffa!

Back in the late 80's BMW was having trouble, (People said that is why they stopped making the E24 which was succeded by the E31 the following year, guess they were wrong), it was growing pains more of less, staff was un-happy etc. they had considered cutting models and focus purly on the three series but then Germany INC came into play and a lot of companies started investing in each other as did the govt, like the state of Lower Saxony owning a 30 percent + stake in VW.

More or less they just tried cost cutting methods that didn't work and finally they got over their slump.

 

[Kirby]

Here is another example of how they are cutting costs, but not quality:

BMW has been drastically increasing investment in environmental protection measures at its plants, and has made major cost savings as a result. In 2004 it invested EUR34.2m, up from EUR5m in 1998.

In an interview with Automobilwoche, Tobias Premauer, BMW executive responsible for environmental protection, said that there are sound financial reasons for this investment, as well as environmental reasons, particularly in the long-term. Without giving any specific details he asserted that in 2004 the company saved more from these measures than the EUR34.2m it invested.

Water consumption has been drastically reduced through recycling water used when cars are cleaned at the end of the production process, and during the paint process, where a powder clear-coat process does not use water at all.

The powder clear-coat paint coating technology is currently in use in Dingolfing, Regensburg and Leipzig and will eventually be used in all BMW plants. Running costs are half that of a conventional paint plant and material costs are around 25% lower.

BMW has also reduced energy consumption from 3.15 megawatt hours (MWh) per vehicle to 2.94 MWh.

At Regensburg a combined heat and power production system is estimated to save around 20,000 tonnes of CO2 emissions a year.

Another ‘financial’ measure of the success of Clean Production is the fact that for the third year BMW is the top-ranking automotive company in the Dow Jones Sustainability Index.

 

[PhatBimmer]

I'll be a BMW guy even with the cost cutting. I heard that Toyota is the only company not going through financial problems at the moment, but thats just what I heard and no proof of it either.