Automaker targets BMW USD 8.5 billion in cost savings by 2012

Automaker BMW AG said Thursday that it hopes to cut costs by EUR6 billion (US$8.5 billion) by 2012 under a new efficiency drive, and said it would increase currency hedging and increase plant capacity in the U.S. to address risks posed by the weak dollar.

Photo: Automaker targets BMW USD 8.5 billion in cost savings by 2012

Munich-based BMW said it would put "all cost structures to the test" and continue to standardize processes as it seeks to reduce costs per vehicle in development, production, sales and administration.

It said it was targeting a rise in productivity of at least 5 percent per year. "We will focus the entire organization on the return on capital," CEO Norbert Reithofer said in a statement.

BMW said that, as a result of the planned productivity increase, it "expects to be able to achieve the growth planned for the period until 2012 with roughly the same level of personnel as today."

BMW, which like other European exporters faces the risk of seeing its products become less competitive abroad as the euro trades at record high levels against the U.S. dollar, also said it would step up currency hedging to insulate itself from that risk. The company already has extensive "natural hedging" simply by locating much production in the United States, one way of shielding itself from exchange rate swings.

"The BMW Group will strategically step up natural hedging as well as purchasing, primarily in U.S. dollars," it said.

The company pointed to plans already under way to increase production capacity at its Spartanburg, South Carolina plant from 140,000 units to 240,000 by 2012.

It said it would raise the capacity of its Oxford, England Mini plant to 260,000 cars per year without making additional investments, and also would take the first steps toward increasing capacity in China to 44,000 units per year from 30,000.

The company also would not rule out new acquisitions to expand its reach.

"In principle, we will keep acquisitions on our agenda," Reithofer said. "We defined clear criteria for potential acquisitions within the scope of our strategic review. This will allow us to act swiftly wherever necessary."

The new strategy "addresses the major points of investor concern (profitability, U.S. dollar risk and cash usage) and sets credible targets for returns and growth," said Stephen Cheetham, senior research analyst for European autos at London-based Sanford C. Bernstein Ltd.

"Though criticism on the grounds of lack of detail is possible, and execution remains key, we believe this announcement should finally lay to rest the idea that BMW management does not care about profitability or shareholders," Cheetham said.

BMW shares were barely changed after the announcement, trading at EUR46.70 (US$66.00) in Frankfurt.