BMW hit by new emissions rules, U.S.-China trade dispute
Automaker facing headwinds from trade policies, Brexit and tougher emissions rules
BERLIN—BMW AG’s earnings from its core automotive business plunged 40% in the third quarter, as the luxury car maker became the most recent victim of a perfect storm of economics and politics that is bearing down on the global auto industry.
Auto makers such as BMW, Daimler AG, Ford Motor Co., Fiat Chrysler Automobiles NV, and Volkswagen AG are caught in a confluence of negative trends, from President Trump’s confrontational trade policies, Brexit, European efforts to combat global warming with ever tougher emissions rules, to weaker demand for new vehicles in China, the U.S. and Europe.
After years of easy profits and high growth, the German auto industry—one of Europe’s flagship sectors—is under pressure from a mixture of cyclical changes, including weakening demand in China, and longer-term structural challenges, ranging from technological shifts to new competitors and the re-emergence of global trade barriers.
BMW, following its peers Volkswagen and Daimler, Wednesday published earnings for the three months to Sept. 30 that showed its business is under enormous pressure.
BMW said net profit fell 24% to 1.4 billion euros ($1.6 billion) in the third quarter, with a 40% decline to 771 million euros in its closely watched core business selling premium BMW brand sedans and sport-utility vehicles, the Mini compact car, RollsRoyce luxury sedans and BMW motorcycles.
The company said the pretax
profit margin in its core automotive business fell to 4.4% in the quarter from 8.6% the year before.
BMW sold 592,303 vehicles world-wide in the third quarter, up 0.3%, as revenue rose 4.7% to 24.7 billion euros.
In Europe, auto makers face a backlash against diesel in the wake of Volkswagen’s 2015 emissions-cheating scandal.
A number of cities in Europe are banning diesel-powered vehicles from urban traffic and the German government is pressuring the industry to retrofit older diesels to improve emissions. “Retrofitting the hardware just doesn’t make sense,” BMW Chief
Executive Harald Krüger told reporters on Wednesday.
The European Union is set to impose new emissions targets that would require auto makers to lower greenhouse gas emissions by another 30% by 2030. And a new testing regime— dubbed world harmonized light vehicles testing procedure, or WLTP—has forced auto makers to recertify all vehicles sold in Europe.
That led to a price war over the summer, as manufacturers flooded the market with uncertified cars before the new WLTP rules went into force.
New car sales in Europe fell 23.5% to just over one million
vehicles in September, lowering growth over the first nine months of the year to 2.5% to 12 million vehicles.
On the trade front, BMW and Daimler have been hit by President Trump’s trade dispute with China. Both car makers build sport-utility vehicles in the U.S. for export to China, putting them in the firing line when China imposed retaliatory tariffs on U.S.-built cars.
And, now that U.S. midterm elections are over, President Trump is expected to turn his attention to efforts to force the EU to drop import tariffs on U.S.built cars or face high tariffs on European exports to the U.S.
Over the past decade, auto makers have bet on growth in China and other emerging markets. But now new car sales in China are falling for the first time in years, hitting profits at German auto makers for whom China accounts for a large part of their annual sales and profits.
The upshot: auto makers face uncertainty as they look ahead to 2019.
“The general conditions for the automobile industry are challenging,” Nicholas Peter, BMW’s finance chief, told reporters on Wednesday. “Trade barriers, the shift to WLTP, and the discussion about emissions and targets are making business difficult.