Job cuts, more direct selling to customers, cheaper parts and fewer model variants are the key elements to BMW’s cost-cutting programme, the firm's new CEO has said. 

The pressure to cut costs at the premium brand increased sharply after profit margins dipped to 3.6% in the first half of the year as a result of collapsing sales in China.

“The figures in the first and second quarter are not satisfactory,” CEO Milan Nedeljkovic told analysts and media on the company’s earnings call in late July. 

Nedeljkovic, who took over the top job from Oliver Zipse in May, outlined a number of headwinds faced by the company, including China, tariffs, global trade barriers and regulations. “To address these challenges, we are taking immediate decisive action,” he said.

The ultimate goal is to return the company to its target margin of 8-10% per year, which is now forecast for the beginning of the next decade. But Nedeljkovic acknowledged that won’t be easy. He said: “We know we have hard work to do on the road ahead.”

The jobs cuts were the most eye-catching part of the promised cost savings, and while BMW execs didn’t give a number, they also didn’t push back too hard on the 8000 figure (from 150,000 employees globally) quoted in the German press.

However, unlike the Volkswagen Group, BMW was adamant that these won’t involve plant closures or affect production staff at all. Instead, the cuts will come from “indirect functions in Germany” and will largely involve voluntary redundancies.

“The production footprint is in our case quite balanced and well loaded, especially looking to Europe,” said Nedeljkovic.

China is where BMW has excess capacity, at around 830,000 units, after sales fell 20% to 261,999 cars in the first half of the year. But the company argued that it hadn’t properly ramped up production at its newest facility in Shenyang, north-eastern China, and that it cost very little to leave it idle.

Instead, BMW will focus on running the company leaner, and reducing costs in development, sales and production while still leaving room to grow. This is not a company that envisages selling fewer cars. “We are aware of the headwinds. But nevertheless we do see growth in future as a core element," said Nedeljkovic.

Reforming sales was very prominent in the mid-term cost-cutting plan, with Nedeljkovic strongly backing the agency model for Europe, where the manufacturer takes over the sales process from the dealer. 

BMW is one of the few to continue with the direct sales model, which the industry enthusiastically embraced following the lead of Tesla and then mostly abandoned as the difficulties of taking on the sales task from dealers became apparent.

Done successfully, it can cut costs and that is what BMW is banking on. “Direct sales is one of the major changes in our business activities,” said Nedeljkovic. The company is planning to roll it out “step by step” for the BMW brand after launching it with Mini.

The second element of the mid-term cost-cutting is cheaper parts negotiated with suppliers. This was described  by Nedeljkovic as “increasing the speed of development through further standardisation and commonality in engineering solutions and components”. BMW looks to be following a Chinese innovation we’ve recently written about that leans on suppliers to deliver standard parts or software that aren’t necessarily specific to one company. “We are not giving up any performance or any specifications… but we have to realise that the supplier offer has increased over time,” said Nedeljkovic.

Another cost-cutting element will be – of course – greater use of AI “to further automate processes… as well as accelerating decision-making”.

Further into the future, BMW said it is “re-evaluating which technologies, model variants and drivetrains we will need”. The Volkswagen Group has made similar comments about streamlining its line-up and, like VW, BMW didn’t go into specifics about which models or drivetrains would get the chop.

When pushed, Nedeljkovic was quick to offer reassurance that BMW would keep the model variety it already has. “We are a premium manufacturer. This characterises us,” he said.

He also committed to keeping the drivetrain variety that BMW has made a crucial element of its offer, despite the costs associated with that. Instead, the cuts will come country by country. He didn’t give an example but BMW has already pulled its plug-in hybrid models from China this year. 

BMW remains optimistic, particularly when it comes to its Neue Klasse models such as the iX3 that have made such a splash in Europe and are about to land in China. Despite the crash in sales for BMW’s core combustion-engine models in China, the company didn’t follow Mercedes in writing off investments there.

The firm pointed to strong European and US sales as evidence that it remains on the right track. “I would like to emphasise that the basic strategic direction of the BMW Group is not fundamentally changing,” said Nedeljkovic.

Analysts liked the message. “Management's latest restructuring actions and early demand for the Neue Klasse platform support our expectation that profitability will begin to recover from 2027,” said Rella Suskin, equity analyst at Morningstar, in a note.

BMW will expand on its long-term plans at its capital markets day in September but expect more confidence that it can weather the China storm and other headwinds.