Renowned carmaker BMW announced Friday that it is planning to discharge thousands of workers as a step to combat increasing costs and rivalry from its competitors such as Mercedes. This action would mark the company’s first noteworthy layoff in a span of 10 years. BMW spokesman, Bill McAndrews declined to disclose the number of jobs that will be reduced until the beginning of next year. He however did not corroborate the Der Spiegel Internet version which had reported that BMW will liberate around 8000 workers.
Following several years of being the most flourishing carmaker in Germany, Bayerische Motoren Werke faced several losses in its business. The layoff will mainly focus on restoring profitability of the German company. In the recent past, there have been many other instances of such layoffs in Germany with General Motors eliminating several thousands of workers from its Mercedes, Volkswagen and Opel departments. BMW’s concern was to manufacture more number of cars without expanding payments. As BMW is enhancing its car production in the US, it is unlikely that US will be witnessing such a layoff.
According to BMW spokesman Bill McAndrews, many employees with provisional contacts with the Munich-based BMW will be affected as a result of this mass layoff. The company will be proposing voluntary buyouts and will also have a discussion with its unions to settle for more flexible working hours. He added, ‘This will be done with a BMW approach... It will be socially acceptable.’
IG Metall, BMW’s union, showed no astonishment as the layoff news spread. This dismissal confirms that the company is facing stark competitive pressure. According to experts, Porsche and Audi in collaboration with Volkswagen will grow stronger in the years to come. In addition to this, the most immediate competitor of BMW, Mercedes-Benz, has recovered from the unsuccessful merger with DaimlerChrysler subsequent to sale of Chrysler by Daimler in the month of May this year. At present, Mercedes-Benz is registering a superior return on sales than that of BMW. According to an analyst of London’s Morgan Stanley, ‘Over the past 10 years, no one has benefited more from the Chrysler distraction than BMW... No one will be hurt more by the Mercedes revival.’
BMW, which is under the supervision of the Quandt family, is also currently facing rising pressure on its manufacturing costs as a result of stringent regulations by European Union on the release of harmful greenhouse gas carbon dioxide from the passenger cars. As per new emission policies formulated in Brussels this week, BMW will be required to cut down its average discharge of carbon dioxide by 25 percent.
In November this year, the BMW Group’s sale of Mini and Rolls-Royce mounted by 13.2 percent compared to the last year. In 2007, the company is ahead of its 2006 business figures by 8.3 percent. It manufactured 1.347 million cars within November, 2007 and this number equaled total number of vehicles it produced in entire 2006. But its profits declined owing to rising costs. Whereas Mercedes is on the verge of earning more than 8 percent return on sales in 2007, BMW’s return on sales remains at approximately 6 percent. In September 2007, Norbert Reithofer, BMW’s chief executive had divulged the company’s 5-year business strategy to increase profitability along with cost savings worth $8.6 billion. He also fixed a target of achieving around 8 to 10 percent return sales by the year 2012 and revealed the company’s plan to sell 1.8 million cars by that time.
BMW has developed a new sport utility vehicle with a hybrid engine, the X6, together with Daimler and General Motors and it displayed the latest model at the Frankfurt Motor Show in the month of October. It is also in the process of producing the Mini, its subcompact range of models.
Speculation is ripe in Germany that BMW could arrive at a closer cooperation with its archrival Daimler. BMW executives have shown interest in this regard and the two companies are already collaborating in developing hybrid engine technology. Though McAndrews refused to divulge about BMW’s purchase of any stake in Daimler, Jonas of Morgan Stanley had detailed out the advantages resulting from BMW buying a 20 percent stake in Daimler in a report last month. He added that, such a joint venture would help the companies leverage on their operational synergies against the competitor Porsche, Audi, and Toyota’s Lexus. He said, ‘Larger competitors can spread costs over more models, which means they can offer a better car at a better price.’
Some other analysts differed on this opinion by saying that such a deal is unlikely to materialize because, Daimler has recently recovered from a failed merger with Chrysler. The resulting consequences of this huge layoff can be observed only in the year to come.
Image Credit: MotorTrend
Source: IHT
