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Carmakers in Germany are facing their worst crisis in decades

News | November 30th, 2008 by 3
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The economic crisis that hit the world in the past few months could not have avoided the already hurting auto industry. With the Big Three …

Carmakers in Germany are facing their worst crisis in decades

The economic crisis that hit the world in the past few months could not have avoided the already hurting auto industry. With the Big Three seeking government assistance, everyone seem to forget about the large luxury automakers who are facing a similar crisis.

As we reported a few weeks back, BMW was considering tapping Germany’s government- backed banking rescue scheme and said it might also seek US assistance. In compare to the other German carmakers, BMW is in a more difficult situation due falling residual values of leased cars.  BMW hopes to counteratack the crisis in short term by lowering its financial rates and improving the lease factors.

But BMW is not the only one hurting, Daimler is in a bad spot as well and their future is not pink as well. With 150,000 less cars to be built than last year and with the possible outcome of laying off thousands of people, Daimler want Berlin to issue government loan guarantees on the loans taken out by the carmakers’ financing divisions.

As we learned at the LA Auto Show, BMW has placed a huge bet on the new 7 Series, a car that can help BMW through this deep crisis.

The reason I started this post was the great article I read in BusinessWeek, Dietmar Hawranek provides some good insight and a detailed analysis. Feel free to read the full article here.

Norbert Reithofer, the 52-year-old chief executive of BMW, is similarly baffled. He believes the company is “in the biggest crisis in its history.” BMW has already cut more than 8,000 jobs this year. Production in its plants is shut down for several weeks at a time, a step that Volkswagen and Mercedes-Benz have also taken. But this will not be enough to offset the sharp decline in sales. In some markets, auto sales have not dropped by this much since the 1973 oil crisis.

The Daimler CEO has already concluded that Mercedes-Benz will produce more than 150,000 fewer cars than planned in 2009. Management is negotiating with labor representatives over the possibility of Mercedes reducing the workweek to 30 hours, with a corresponding wage cut for workers, or introducing part-time work at the company. Daimler may have to cut several thousand jobs. How many? Zetsche, 55, is not even willing to venture a guess.

“We are producing the wrong engines,” Manfred Schoch, the chairman of BMW’s works council, warned. The plant can satisfy the demand for eight-cylinder engines in single-shift operation over a four-day workweek. Six-cylinder engines are also becoming less popular, so much so that production could be shifted to the company’s engine plan in Steyr in the future. This would “mean the death of BMW at the Munich location,” said Shoch.

  • bcoz_racing

    Governments bailing out their countries’ businesses… doesn’t this violate trade agreements regarding gov’t subsidies?

  • Tom

    Why is BMW hedging its bet on the 7 series? It is the most expensive line in BMW and has an 85.3% lease penetration. Most automakers are hitting the brakes on leasing. In addition, leases account for 70.7% of Z4 retail volume, 68.8% of 6 series retail volume, and 67.3% of X3 retail volume. BMW will be in a world of hurt if it doesn’t change the business model. BMW should be placing its bet on Project i (Isetta? Triumph?); Isetta has already saved BMW from bankruptcy once and a revival could make for an ideal car for consumers in the current economy.

  • israel

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