Falling sales will cost BMW board members 40 per cent of their bonuses, with the rest of the group's 100,000 staff also facing pay cuts, it was revealed yesterday. The German car giant's annual results showed it sold 58,000 fewer vehicles in 2008 and its net profit of €330m (£310m) was nearly 90 per cent lower than in 2007.
Some 7,500 jobs have already been shed by BMW worldwide, including 850 at its Mini plant in Cowley, Oxfordshire, and another 4,000 staff have taken voluntary redundancy.
In addition, falling sales will now take a chunk out of staff salaries at all levels. BMW's board members, who receive more than 70 per cent of their pay as an annual performance-related bonus, will see a 40 per cent cut in the lump sum paid this spring. Senior executives will lose 30 per cent compared with last year, while the rest of company's workforce are facing a 10 per cent drop in their salaries.
Norbert Reithofer, the chief executive, will be paid his €600,000 basic salary as usual, but his overall package will drop by €1.65m to €2.3m.
Dr Reithofer said yesterday: "A profit-sharing programme for our board members, executives and all employees is an important element of our compensation system. We apply this system in good times as well as in challenging times. I am convinced that our employees understand the difficulty of the current situation and are willing to accept this hardship."
The reduction in the workforce is expected to save BMW €500m a year. Shareholders will also feel the pinch, with the company's dividend cut from €1.06 to €0.30. Although the economic crisis, which has caused a collapse in car sales across the world, makes reliable predictions tricky, BMW is now expecting the overall new vehicle market to contract by between 10 and 20 per cent this year, with recovery starting only in 2010. It expects next year's launch of new, high-margin BMW models to improve its figures.
Dr Reithofer added: "2009 will be a transition year. This is why we have set clear priorities: liquidity, free cash-flow and working capital, fixed costs, investments. In other words, we are tightening our belts – just like any good businessman."
BMW's profitability targets for 2012 – a 26 per cent return on capital and an 8 to 10 per cent earnings margin – remain in place, but its sales are likely to fall short of the 1.8 million goal.
Dr Reithofer was keen to stress BMW's determination to remain independent, putting paid to rumours of a potential tie-up with Daimler or PSA Peugeot Citroën. BMW's solvency for 2009 is assured. It needs only about €11bn – of which a third has already been raised from bond issues.