BMW spent two days at the end of September laying out how it intends to get its profitability back, first in Munich and then at the company’s Gut Schwaerzenbach retreat in Bavaria. The headline number is an automotive division margin of 3 to 5 per cent by 2028. The longer ambition is 8 to 10 per cent by the early 2030s.
Read those two targets together and the second one does the talking. The most recent automotive margin was 2.3 per cent. The level the company once treated as ordinary is now a goal for the next decade.
The plan itself is substantial rather than cosmetic. Divisions and management roles are to be cut by 20 per cent by the middle of 2027. A previously announced redundancy programme affects around 8,000 jobs in Germany, a little over 5 per cent of the workforce. About 2 billion euros goes into German production of the next generation 3 Series. Artificial intelligence is being pushed into development, purchasing, sales and aftersales. A new entry-level electric car is planned for Europe in 2028 and a luxury SUV above the X7 for the United States. In China, the aim is to raise local production and tailor at least 95 per cent of locally built vehicles to Chinese customer preferences by 2030. Free cash flow in the automotive business is targeted above 7 billion euros.
The context is a June profit warning, the third in just over three years tied to weakness in China, which cut the operating auto margin guidance to 1 to 3 per cent from 4 to 6 per cent. The shares have fallen more than a third over the past year to their lowest in more than six. Bernstein’s reading is that European and American plants are running flat out and China is the region that needs the production adjustment.
Here is what a long recovery plan actually does to the people inside it.
A cafe that has had a bad eighteen months eventually sits down and writes the version of this document. Costs come out, the menu is simplified, the good equipment gets bought anyway because the alternative is a slow death, and a number is put on the wall for three years from now. The number is always lower than the number the business used to hit without trying. That is not pessimism. It is the first honest thing anybody has said in a year, and the staff can tell the difference immediately.
The danger in these plans is never the cutting. It is the quiet substitution of the plan for the trading. There is a seductive period in any turnaround where the restructuring becomes the work, where the deck is more satisfying than the shop floor, and where everybody can describe the 2028 margin in detail while nobody can describe what changed this Tuesday.
BMW appears to know this. Bernstein’s note after meeting management records the company’s own position that the answer is not simply cost-cutting, and the spending on the 3 Series and on China localisation says the same thing with money. You do not put 2 billion euros into a sedan if your theory of recovery is that you can shrink your way back.
The hard part is sequencing. Localising 95 per cent of Chinese production to Chinese taste by 2030 is the right answer to the problem that caused three profit warnings, and it arrives years after the problem started billing.
A recovery plan is a company telling you, in public and under oath, exactly how bad it is. The number on the wall is the measurement.
Source: BNN Bloomberg, “BMW targets margin recovery with cuts and local production”
