BMW Chief Faints On Stage During Frankfurt Auto Show

BMW Chief Faints On Stage During Frankfurt Auto Show

Back in June we noted that for luxury car manufacturers, the Chinese cash cow is dying. “The enormous growth rates luxury-car makers like us have seen in China in recent years won’t continue,” Porsche CFO Lutz Meschke warned at an event in Atlanta in May and needless to say, the picture has not brightened since then.  

The dramatic bursting of China’s equity bubble along with nervousness around the botched attempt to transition smoothly towards a new currency regime has left the country on edge, and although the Tianjin explosion did wonders to vaporize a bit of excess auto inventory, it didn’t do much to calm the country’s frayed nerves. Xi’s anti-corruption campaign hasn’t done anything for the luxury space either.

Here’s what Barclays had to say Monday on the way to slashing GDP growth forecasts for China: “The stock market crash and rising CNY depreciation expectations are also hurting investor and consumer confidence, adding downward pressure to growth in the coming quarters. Looking into 2016, we believe the three major headwinds highlighted in the medium term – excess capacity in many industries, oversupply in the housing market and high debt burdens (especially among local governments) – together with anti-corruption and policy uncertainties will continue to weigh on growth.”

As Reuters reports, with economic growth decelerating at a rapid pace (as telegraphed by the yuan deval) and with trillions in paper gains having vanished from the SHCOMP and Shenzhen, luxury automakers are cutting costs and production for their China ventures. Here’s more:

Volkswagen and other major carmakers have begun reining in Chinese output, wages and other costs, industry sources told Reuters, as executives at the Frankfurt auto show put a brave face on a sharp slowdown in the world’s biggest vehicle market.

The German car giant’s Chinese joint venture, FAW-VW, is cancelling staff bonuses and cutting shifts at its plants near Changchun, northeastern China, people with knowledge of the matter said. The bonuses being scrapped typically account for more than half of the assembly-line workers’ take-home pay.

Volkswagen’s high-end Audi brand also said it had cut output at its Chinese plants, trimming the working week to five days from seven in response to lower demand for models such as the A6 saloon.

And German rival BMW said on Tuesday it had reduced output of its locally produced 3 and 5 series models. “We reacted relatively fast,” Chief Financial Officer Friedrich Eichiner told journalists. “We are not stockpiling.”

Car sales in China, until recently the profit engine for automakers around the world, have been hit by a cooling economy and a plunging stock market. Demand was flat in the first eight months of the year and could drop in 2015 for the first time since the market took off in the late 1990s.

But some analysts said the Chinese slowdown was coming at a time when carmakers are still opening factories in the country — creating an excess of capacity that could weigh on profits.

Leading research group IHS Automotive expects carmakers’ capacity utilization rates in China to drop to 65 percent from last year’s 70 percent, a key profitability threshold.

“The mood is very depressed at VW, BMW or GM,” said Clemens Wasner of Austrian automotive consultancy EFS, which advises several German carmakers in Asia.

One person who saw this coming was former BMW chief Norbert Reithofer (who stepped down in May) who said luxury manufacturers “need to get used to single-digit growth in China.”

As for Reithofer’s successor, we wonder, based on the following clip, whether BMW’s new chief knows something everyone else doesn’t about how bad things really are in China…

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