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BMW predicts tough fourth quarter after profits slump

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BMW AG fell after the German manufacturer said drag from trade tensions, higher provisions and pricing pressure that have marred automotive profits will persist into year-end.

[MUNICH] BMW AG fell after the German manufacturer said drag from trade tensions, higher provisions and pricing pressure that have marred automotive profits will persist into year-end.

The shares declined as much as 3 per cent, the most in more than two months on an intraday basis, and were 2.6 per cent lower at 74.90 euros at 9.04 am in local trading.

BMW's somber tone contrasts with rivals Mercedes-Benz owner Daimler AG and Volkswagen AG, who struck a more positive note for the fourth quarter, expecting a boost from clearing vehicle inventory and maintaining sales momentum in China. The comments follow BMW's return on sales from automaking nearly halving to 4.4 per cent during the third quarter, missing expectations.

"BMW reported a difficult quarter very similar to its German premium peers," Evercore ISI analyst Arndt Ellinghorst said in a note. Given BMW has had fewer issues meeting the new European Union emissions testing regime than its competitors, "we would have expected the company to show some relative strength – which it hasn't."

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Carmakers are battling on multiple fronts. Already under pressure from record investment demands, the past few months have seen trade tensions intensify and new emissions testing rules in the EU distort the market. While BMW was ready to meet the new regime, the likes of Volkswagen rushed to register cars before a September deadline, leading to a glut of vehicles. Faced with unexpected pricing pressure, BMW lowered profit targets in September.

During the third quarter, the company also had to set aside more funds to deal with recalls of fire-prone vehicles and other warranty claims. A global campaign to exchange certain engine modules contributed to a boost in provisions by 679 million euros (S$1.066 billion).

"Along with the rest of the industry, we are increasingly confronted with adverse external factors, the negative impact of which cannot be fully offset," said Chief Financial Officer Nicolas Peter.

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