The crisis in the global auto industry has reached out and grabbed the luxury marque, BMW, by the profit and loss account and given it an almighty squeeze.

The German car giant overnight abandoned its 2008 earnings outlook after third-quarter profit plunged 63% and the provision for bad car leases in the US soared as the global financial crisis sapped demand. Demand in America is falling, along with sales in Europe, eastern Europe, Russia and China. BMW in Australia is battling as well.

BMW dropped its forecast for a 4% operating profit margin in 2008 and scrapped its previous target in August for 2008 pretax profit of 3.78 billion euros.

At the time of the previous forecast, it said the operating profit margin would fall to 4% from 7.5%; now it seems to be saying it will fall well under that level, if the bottom line in the third quarter is any guide.

BMW said its third-quarter net profit fell to 296 million euros ($US375 million) from 800 million euros a year earlier and its finance arm incurred a small loss as the cost of losses on leases soared.

BMW said it had boosted provisions for bad debts and declining values of cars returned on lease to 1.04 billion euros from 695 million euros three months ago. The previous figure was itself a doubling of the previous amount, so there has been a massive escalation in losses this year, mainly due to the US, but now also coming from the slumping European car industry.

BMW announced another round of production cuts. It plans to cut production by another 40,000 cars on top of the 25,000 vehicles it had earlier cut. A year ago, it was looking at lifting production 25,000 in 2008, so the turnaround has been dramatic.

Taking all of these factors into consideration, the BMW Group estimates that it will no longer surpass the previous year’s record sales volume figure in its automobile business,” the company said in the statement.

Due to the prevailing adverse climate and the uncertainties caused by the financial crisis, the profitability targets set for 2008 are no longer achievable.

In particular, it cannot be ruled out that the risk provision for bad debts and lease financing will have to be increased again before the end of 2008.

Given the difficult business conditions described above, the likely progress of business over the coming months cannot be forecast with any exactitude. For this reason, it is not possible to predict the level of Group earnings for the year, other that they will continue to remain clearly positive.

At the same time, it revealed further cuts to production and said some plants would have small holidays in the rest of the year, although nothing like the five week break ordered by rival Daimler over Christmas-New Year. Daimler has also slashed its 2009 earnings forecast twice in the past three months, cut production by at least 45,000 vehicles and is shutting factories for that five week break.

Daimler said it saw sales in October in the us fall 34.3% to 14,996 units from 22,820 units in October last year. Monthly sales of smart cars were 2,236 units.

That left total October sales of the Mercedes-Benz Cars division in the US (comprising both Mercedes-Benz and Smart USA), of 17,232 units, down 24.5% from 22,820 units in same month of last year.

Peter Fray

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