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BMW Expects Pandemic Woes To Last The Whole Year, Reduces Outlook

BMW Expects Pandemic Woes To Last The Whole Year, Reduces Outlook
The coronavirus pandemic is expected to hit its business in terms of demand and earning throughout out the year according to the luxury car maker BMW. This expectation prompted the German automaker to slash its forecast for profitability for its passenger cars after the fall in deliveries for the first quarter. 
For the entire year, a margin on automotive earnings before interest and taxes (EBIT) of between 0 per cent and 3 per cent was forecast by the company. In comparison the company had forecast the same figure at between 2 and 4 per cent before the pandemic crippled demand and deliveries because of the travel and business restrictions by various governments to control the novel coronavirus pandemic. 
"The BMW Group still expects the spread of the coronavirus and the necessary containment measures to seriously dampen demand across all major markets over the entire year," the Munich-based company said on Wednesday.
The company noted a first quarter profit jump of 133 per cent quarter on quarter at 1.38 billion euros or $1.50 billion. However, the profits for the fourth quarter of last year had gone down to 589 million euros because of a one-off hit for provisions of 1.4 billion euros.
The automotive EBIT margin came in at 1.3per cent.
The margin was described as disappointing by Jefferies automotive analyst Philippe Houchois, primarily because the company had made good sale during the quarter of its typically more profitable sport-utility vehicles (SUVs).
The company also said that an expected operating loss could also be made by the company in the second quarter because of the continued extension of lockdown in some of the largest auto markets of the world including the United States and the United Kingdom.
The company is also planning to slash down on expenditure and investments to preserve cash, just as most of the companies in the auto sector are doing in the wake of the economic slump because of the coroanvirus pandemic. BMW said it will extend a savings and efficiency plan worth 12 billion euros. It however did not provide any further details on the issue.,  
"In light of the current situation, we will be delaying a number of projects, like the plant in Hungary. Other projects will be carefully reconsidered," Chief Financial Officer Nicolas Peter said, adding the Hungary plant would be delayed by a year.
The company also noted that in the first quarter, its free cash flow in the automotive business of the company was at minus 2.2 billion euros, and the company added that it did not expect to return to positive cash flow for the rest of the current year despite reducing expenditures and investments.  
The forecast and guidance by BMW clearly shows once again about the waning profitability at traditional automakers because of companies spending heavily on electric vehicle development to meet the stricter emission regulations as wlel as to combat the rise in competition from electric car making companies such as Tesla

Christopher J. Mitchell

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