BMW has made ‘comprehensive provisions’ to protect against falling residual values

05 May 2017

05 May 2017

Following on from an announcement of their preliminary first quarter results in April, BMW Group has released a full report on the first quarter. In the first three months of the year, the carmaker’s profit before tax increased by around a quarter to 3 billion euros. The Group has also released a statement by Dr Nicolas Peter, Member of the Board of Management of BMW AG, Finance. Dr Peter discusses the performance of BMW’s financial services arm and the impact of falling residual values.

In the first quarter of 2017, the BMW Financial Services (BMW FS) closed around 466,000 new financing and leasing contracts with retail customers, equating to an increase of 13% which was led by growth in Chinese credit financing. At the end of March, the division managed a total portfolio of almost 4.8 million customer contracts, with almost 50% of new BMW Group vehicles financed or leased by BMW FS in the first quarter. Pre-tax earnings for the segment reached €595 million, growing by 4.4% year on year. Dr Peter said in the statement: ′The net credit loss ratio of 0.33% remains broadly in line with last year’s low level. As expected, used car prices worldwide – with the exception of Asia – decreased slightly, driven by seasonal factors. We have made comprehensive provisions to cover existing and potential risks in our financial services business and constantly monitor our risk management parameters. Of course, this also applies to our Diesel vehicles. From today’s perspective, we are well protected against residual value and credit risks.’

BMW expects ′a slight decrease in return on equity in the Financial Services Segment – although it will still remain above the targeted minimum level of 18%.’ Dr Peter did not elaborate on the reasons behind the decrease but aside from a general fall in used car values globally, residual values of BMW cars and those of their premium German peers Mercedes and Audi could be affected by the introduction of the new WLTP emissions testing system.

As discussed by Autovista in March, cars that were previously tested with limited equipment fitted as standard stand to see sharp rises in their fuel economy and emissions figures. Premium brands tend to have substantially higher optional content than the volume manufacturers. This naturally made many test cars much lighter and, in turn, more fuel-efficient and less polluting than the cars that were actually registered and used on the road, once common optional extras such as multi-zone air conditioning, larger wheels and leather seats were fitted. These optional extras can of course account for several hundred additional kilograms in weight, which in turn increases CO2 emissions and fuel consumption. Under the new scheme, cars will be tested with their optional equipment fitted to present a clear view on achievable real driving emissions (RDE) and fuel consumption for each level of specification that is offered.

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