AG’s much-anticipated announcement today of a headcount reduction calls for the elimination of 8,100 jobs worldwide, most of those temporary positions and all but 600 in Germany.
The plan, which is expected to be completed without layoffs for full-time employees, is consistent with how Stefan Krause, management board member in charge of marketing and sales, characterized the pending restructuring in an interview last month with Ward’s.
says the goal is to boost its bottom line in three key areas by 2012, including achieving a return on capital employed of 26%, an increase of 8%-10% in return on sales for the automotive business and an overall €6 billion ($9.1 billion) reduction in costs.
The biggest portion of that €6 billion in savings – €4 billion ($6.1 billion) – will come from cuts in materials purchasing, now totaling €25 billion ($37.8 billion), the auto maker says.
BMW doesn’t detail how it will achieve those savings, though in October it established a new Purchasing and Supplier Network division “primarily responsible for lowering material costs” under the direction of Management Board Member Herbert Diess.
In the January interview, Krause acknowledged that creation of the new department has sent some shock waves through the supplier community, fearful BMW would begin to squeeze parts makers on pricing. But he said no big changes were coming in the auto maker’s purchasing philosophy.
“BMW has traditionally been a company with extremely strong supplier relationships,” Krause said. “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.”
Much of the remaining €2 billion ($3 billion) in cost cuts will come from the staff reductions and continued productivity improvements, BMW says.
About 5,000 temporary jobs will be eliminated in Germany by year’s end. Half that total already has been slashed, BMW says. Another 2,500 cuts will come from among the auto maker’s 80,000 permanent staff in Germany.
The auto maker says the reduction in permanent positions will come through attrition and “mutual agreement.” Several hundred employees reportedly already have signed separation deals. BMW’s labor contract that runs through the end of 2013 prohibits lay off of any permanent employees in Germany.
No major cuts will be made at the Leipzig, Germany, plant, where BMW produces about 700 3-Series sedan and 1-Series coupe and hatchback models daily. Leipzig employs about 2,700 workers, plus another 5,400 are employed at suppliers and service providers operating on the Leipzig grounds.
“I would like to emphasize…that in Leipzig there will be no serious actions concerning temporary workers or permanent staff,” says Ernst Baumann, management board member in charge of Human Resources. “We will only need to make some minor adjustments.”
The Leipzig plant is in the midst of a €100 million ($151 million) expansion expected to be completed in 2009 that will see a stamping plant added to produce body panels and a separate shop to put together doors, hoods and trunk lids.
Another 600 jobs will be cut from operations outside of Germany, mainly at the more than 40 global sales subsidiaries. BMW says it employs 28,000 permanent staff outside of Germany.
The overall job cuts are needed because BMW continues to improve its productivity and because it expects slower sales growth over the next few years, Baumann says. Its target of 1.8 million car and light-truck sales annually by 2012 marks a 20% gain from 2007’s 1.5 million vehicles.
“In the last couple of years, the increase in productivity amounted to between 5% and 10% a year,” Baumann says. “We will strive to maintain a minimum annual productivity rate of 5% in the future.
“At the same time, retail volumes won’t rise as much as they did in the last years. In 2007, alone, we achieved a sales increase of almost 10%. We are not anticipating comparable growth rates in coming years.”
The plan also calls for some investment and new hiring. BMW says it will open up some 500 new positions this year in engineering and information technology.
“We need highly skilled and qualified staff, especially engineers, if we want to achieve our goal of creating new vehicle concepts for individual mobility,” Baumann says. “We have set up a comprehensive innovation project to develop new concepts of mobility. This is about completely new vehicle and drivetrain concepts, for example for mega-cities.”
The auto maker also is looking to expand its financial services offerings.
“We are thinking of other-brand financing, car-related insurances and direct banking,” Baumann says.
Baumann says more action will be needed on labor costs if the euro continues to strengthen against the dollar, currently at €1/$1.50.
BMW first signaled the cost-cutting move in September when CEO Norbert Reithofer indicated it would put “all cost structures to the test.”