management and leasing arm Alphabet has “temporarily” ceased new
business origination, the manufacturer said.
The decision to stop taking on new contracts is “due to the
strong rise in refinancing costs as a result of the financial
crisis”, BMW said, as well as the “difficulty” in reflecting these
higher costs in the rentals paid by customers.
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“Our focus is on our core brands. We are therefore limiting our
activities first and foremost to the financing and leasing of BMW
Group products,” BMW stated.
A BMW spokesman confirmed that the decision applied to
Alphabet’s global operations.
BMW Financial Services reported a pre-tax loss of €17 million
for the third quarter of 2008, with bad debts and plummeting
residual values blamed for the result, a stark contrast with the
€191 million pre-tax profit made by the division in the same period
last year. The captive’s risk provision expense for the nine months
to September 30 was €477 million, it said.
New business at Alphabet, which is part of the Financial
Services division, grew strongly over the first nine months of the
year, up 19.8 percent on 2007 to 315,351 contracts worldwide. In
its Q3 report, BMW noted the strength of its liquidity base
“despite the current financial crisis”, boasting of access to “a
diversified and flexible range of funding sources” to finance
operations.
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By GlobalData“In addition to issuing bonds and commercial papers, this also
includes the use of asset- backed securities, bank credits and loan
notes [which] are primarily used to finance the financial services
business of the BMW Group,” the manufacturer said.
However, BMW chairman Norbert Reithofer commented in a Q3
earnings conference call that earnings take precedence over
volumes.
BMW’s decision to halt new business at Alphabet will remain in
effect “until the debt capital markets show signs of a sustainable
recovery” – although it affirmed that it remains “committed” to the
leasing unit.
