BMW has said it will save EUR500m a year by cutting several thousand jobs and EUR750m a year from purchasing.
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“We are doing our homework to ensure our business success in the future. The implementation of our new strategy is not a 100-yard dash. This year, we are laying the foundation for a turnaround in profitability,” chairman Norbert Reithofer told analysts in London on Wednesday.
The measures are part of a plan named Number ONE strategy, which BMW presented at the end of September 2007. The aim is to achieve a return on capital employed (ROCE) of more than 26% and a return on sales of between 8% and 10% by 2012.
Group CFO Michael Ganal said the cost of materials would be reduced by 3% or EUR750m a year, resulting in EUR4bn savings by 2012.
EUR500m annual savings are expected to come from eliminating several thousand manufacturing workers. Ganal said BMW would use more temporary workers who offer greater flexibility. Permanent employees will be offered voluntary redundancy and partial retirement arrangements from 2008. Vacancies will not be filled.
In a statement BMW said it was exploring cooperations with other manufactures to share components or engines, to achieve economies of scale and cost reduction. Ganal said talks are under way but no decisions have yet been reached.
The company also wants internal synergies from using components based on a construction kit system for various models. Drive engineering is another area where it wants to become more efficient. In the next few years, the company aims to reduce variant engineering costs, despite the rising number of variants caused by differences in emissions regulations worldwide.
Ganal emphasised that BMW would continue to invest in emissions reduction but it said it would reduce R&D spend to between 5.0 and 5.5% of revenue, down from an average of 6.1% in the last five years.
Natural hedging
It added that a large proportion of the adverse effects on its earnings in recent years have come from negative currency effect so it wants to improve natural hedging. To this end BMW wants to source more components in the US and raise local content at its Spartanburg plant still more from the current 60%.
It will also source parts for Europe and other regions from the US.
New business areas
BMW said it would develop new areas of business along the vehicle life cycle. This includes developing new accessories sales channels, and expanding its activities in the used vehicle business. It plans to offer new individual mobility services as well as service modules.
