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Tech Fails To Deliver For BMW As Profits Plunge

Technology and a major investment at CES over the past five years has failed to deliver profit growth for BMW, with profits plunging 40% as debates rage over new electric cars and the elimination of diesel vehicles that are proving popular in Australia due to the high cost of petrol.

The German auto maker who is struggling to hold on to market share worldwide as competition from new technologically advanced vehicles, is facing several headwinds, including President Trump’s trade policies that have started an automotive war with China and the EU’s obsession with cutting gas emissions.

The company said its third-quarter net profit fell 24% from a year earlier to €1.4 billion or A$2 Billion including a 40% decline to $1.2 Billion in its core business of selling premium BMW-brand sedans and sport-utility vehicles, the Mini compact car, Rolls-Royce luxury sedans and BMW motorcycles.

There are two things affecting BMW an automotive technology shift that has seen brands such as Tesla enter the luxury automotive market and the need for greener vehicles.

The company said the pre-tax profit margin in its core automotive business narrowed to 4.4% from 8.6% in the year-earlier period.

BMW sold 592,303 vehicles world-wide in the latest quarter, up 0.3%, and its revenue rose 4.7% to A$38 billion.

In Europe, auto makers face a backlash against diesel in the wake of Volkswagen’s 2015 emissions-cheating scandal. A number of cities in Europe are banning diesel-powered vehicles from urban traffic, and the German government is pressuring the industry to retrofit older diesels to reduce emissions.

“Retrofitting the hardware just doesn’t make sense,” BMW Chief Executive Harald Krüger told reporters on Wednesday.

In Australia diesel BMW vehicles are proving extremly popular across the Companies SUV range such as their new X4 X5 and X3 vehicles as well as across their sedan range.

When BMW first launched as a subsidiary in Australia in 1982 the Company that was headed by Ron Meatchem was third if not fourth in the luxury car market. By taking on market leader Volvo and Mercedes the brand eventually got to #1 in the market through a combination of motor sport invest which has since been dumped, BMW Art Car events, Golf and extensive brand marketing.

Now dealers are complaining that the local subsidiary is being micro managed by BMW AG and that the brand faces the real possibility of sliding as Mercedes and several other luxury brands crank up their marketing.

Up until 2017 luxury vehicles had been on upward trajectory but that is changing. Following four years of double-digit growth, sales of luxury vehicles slipped 6.0 percent last year, the end of a long-running boom and the first major correction since the global financial crisis a decade ago.

Between 2012 and 2016 sales of luxury vehicles grew 68 percent against the backdrop of a market that edged up just 6 percent.

These days, more than one in 10 vehicles sold is a luxury car or SUV with technology playing a key role in the sale with consumers demanding mapping, entertainment as well as security technology built into their vehicles.

The problem facing Australia is that the European Union is set to impose new emissions targets that would require auto makers to lower greenhouse-gas emissions by another 30% by 2030.

And a new testing regime—the world harmonized light vehicles testing procedure, or WLTP—has forced auto makers to recertify all vehicles sold in Europe.

That led to a price war over the summer, as manufacturers flooded the market with uncertified cars before the WLTP rules took effect.

New-car sales in Europe fell nearly 24% to just over one million vehicles in September, with growth over the first nine months of the year easing to 2.5% for a total of 12 million vehicles sold.

“The general conditions for the automobile industry are challenging,” Nicholas Peter, BMW’s finance chief, told reporters on Wednesday. “Trade barriers, the shift to WLTP, and the discussion about emissions and targets are making business difficult.