BMW to cut thousands of jobs to boost profit

21st December 2007, Comments 0 comments

Despite booming sales of its luxury cars, BMW said Friday it would cut thousands of jobs at its German plants in a bid to raise its profit level.

21st December 2007

Munich (dpa) - Despite booming sales of its luxury cars, BMW said Friday it would cut thousands of jobs at its German plants in a bid to raise its profit level.

The news website Spiegel Online said 8,000 jobs would go at BMW, which leads Germany's three other premium brands, Mercedes-Benz, Porsche and Audi, in unit sales worldwide.

Industry sources said that number was plausible.

Chief executive Norbert Reithofer has told employees that payroll downsizing is needed because the company has to reverse a constant decline in its earnings ratio.

In Frankfurt trading, BMW stock bolted higher on the news, trading at 42.16 euros Friday afternoon, 4.3 per cent higher than its Thursday close.

A spokesman at BMW's office in Munich said the company would mainly shed workers supplied to it under labour contracts, whereas most of its own 107,700 employees, who are largely unionized, would keep their jobs.

A BMW factory at Leipzig in eastern Germany makes extensive use of contract workers.

BMW is expected to report its biggest ever sales this year as well as record earnings without extraordinary items.

However investors have complained that its pre-tax return on sales (ROS), a ratio widely used to evaluate a company's operational efficiency, is just 6 per cent, lagging behind the other premium car groups.

Reithofer says he is seeking to shave 6 billion euros (nearly 9 billion dollars) off future budgets.

In reaction Friday, IG Metall, the principal union at BMW, said it was not surprised and believed the cut in contract labour was linked to a lull in output as the company tools up for a new model of its 7 Series flagship car.

A BMW spokesman said BMW could cut its own payroll by not replacing those who retired, or by offering buyouts.

A payroll job at BMW has traditionally been seen as just as smooth and safe as driving one of the company's cars.

The company's 2007 earnings forecast suggests it will exceed the level of 3.75 billion euros.

Shipments in the first 11 months of the year rose 8 per cent in annual terms to more than 1.3 million vehicles, almost as many as in all 2006, as the BMW brand races with its traditional rival Mercedes for market supremacy.

The group says its two sub-brands, Mini and Rolls-Royce, are also headed for record unit sales.

DPA

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