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BMW Says No Drastic Job Cuts as Battles Rising Costs, Weak Dollar

Stefan Krause, BMW’s top sales executive, dismisses reports of growing friction between the auto maker and its suppliers as a result of cost-cutting initiatives.

DETROIT – The weak dollar and increasing commodity prices are squeezing BMW AG’s bottom line, but don’t look for massive employment cutbacks or forced layoffs, a top BMW official says here.

Reports surfaced in December BMW would slash up to 8,000 jobs this year, mostly in Germany, and negotiations were said to be under way between the auto maker, which employs about 107,000 people, and German labor representatives.

But Stefan Krause, management board member in charge of marketing and sales, says that while the auto maker is eliminating some temporary positions and trimming its full-time staff through attrition, there will be no major jobs-reduction program in 2008.

“These reports are not true,” he tells Ward’s in an interview at the North American International Auto Show. “We (have been) cutting temporary staff. But these temporary workers are employed by agencies, and the German economy is going well right now, so there is no question that they all will find employment.

“The second thing is, we’ve done some early retirement programs and to some extent we have not filled open positions,” he adds. “So that’s where these reports are coming from.

“But we haven’t taken any drastic headcount reduction. (And) we don’t expect (to do so in 2008).”

A U.S. spokesman says there will be reductions in manufacturing jobs in Germany, mostly through elimination of some temporary positions and attrition, but the number of cuts has not been determined. But at least a portion of the job losses will be offset by a couple hundred added positions in engineering.

“So it is not about reducing headcount,” the spokesman says. “It is more about (shifting) the workforce” where it is needed. He says BMW is looking to increase sales – its long-term goal is to hike global deliveries 40% to 2 million units annually by 2020 – without increasing the size of its workforce.

Krause also dismisses reports of growing friction between BMW and its suppliers, saying fears the auto maker will get tougher on its parts base are the result of a decision in October to create a new Purchasing and Supplier Network division under the direction of Management Board Member Herbert Diess.

At the time, the auto maker said the division would be “primarily responsible for lowering material costs.” But Krause says there’s been no change in BMW’s purchasing philosophy or tactics.

“BMW has traditionally been a company with extremely strong supplier relationships,” Krause says. “The reason for the higher degree of satisfaction with BMW is that (suppliers) feel we have very competent engineers and we are a partner when it comes to getting (product) innovations to market. And that hasn’t changed.

“Of course, like any other manufacturer we’re putting some pressure on suppliers so that they get more efficient and we can have lower pricing,” he adds. “But this has been a regular process.

“I think there’s been some storytelling and legends being built up only because we now have a member of the board in charge of purchasing. So obviously, the first fear is there is going to be a change (in the way BMW works with its suppliers). But so far, not really.”

Krause, who took over the top sales and marketing job in October, moving over from head of finance, admits the euro-dollar exchange rate and material costs are pressing margins.

“Our biggest concern right now would be the weak dollar,” he says. “And the second-biggest concern probably would be raw-material pricing. But the big difference is that raw-material pricing affects every competitor. Whereas the currency (issue) is benefiting the Japanese and American competitors.

“We like (competition) because we feel we’re good at competing. But the Japanese premium manufacturer today has pricing abilities in the United States that we cannot afford.”

BMW already has announced capacity expansion at its Spartanburg, SC, plant, where it will launch the new X6 cross/utility vehicle and shift X3 production from Europe, and is stepping up parts purchasing in the U.S. and other dollar-pegged regions in order to offset some of those exchange-rate losses. Krause says additional U.S. vehicle production beyond the announced 240,000-unit capacity for 2012 also is possible.

“That’s the only thing you can do about (the weak dollar),” Krause says. “Regretfully, that’s not a change you can effect over night. It is a process that takes quite a few years until you really move the needle a little bit. And that’s the main challenge.”

Unfavorable exchange rates also mean BMW likely will allocate more of its production to more profitable markets. But Krause says that will happen only as the auto maker increases output overall, and it won’t cut shipments here to the U.S.

“(We’ll do that) with additional production, but not with the base production,” he says. “Because we have to make sure we maintain a profitable dealer structure here.

“But if we get an additional production opportunity for X5s or something, we might allocate that according to profitability. They’re more likely to go to Russia right now, to China, than to the U.S.”

Despite the exchange-rate pressures, BMW remains profitable in the U.S., Krause says.

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