Tuesday, May 30, 2017

BMW Slows Productions due to Supply Shortage

BMW, the German luxury car maker, is halting its production of several compact and mid-sized car models due to a shortage of parts specifically steering gears supplied by Robert Bosch, the world’s largest supplier of car parts. 

"Our supplier Bosch is not currently able to provide us with a sufficient number of steering gears for the BMW 1 Series, 2 Series, 3 Series and 4 Series," BMW said in a statement on Monday.

Production of cars is quite complicated and BMW normally relies on “just-in-time” production, meaning it only orders gears or parts when it needs them. Therefore, delayed supply or shortage has an immediate major effect. In this case, the  disruption has caused a stoppage of plants in Leipzig and Munich in Germany, as well as Rosslyn,  South Africa and Shenyang, China.

Marcus Duesmann, BMW board member overseeing purchasing and supplies, said “only limited production” of BMW 1-, 2-, 3- and 4- series cars are possible and that BMW expects Bosch to compensate for damages.

“Automotive value chains are international. An interruption in delivery of parts from a partner in Europe can therefore also have implications in China,” said Mr. Duesmann.

"We are taking advantage of the flexibility of our processes to minimize economic damage. We expect that Bosch, as the responsible supplier, will compensate for damages," BMW said.

Meanwhile, Bosch said that the trouble started from a sub-supplier in Italy, which delivers the housing for electric steering systems it send to BMW. Bosch associates who are on site in Italy said that they do all they can do to resolve the delivery bottlenecks.

The BMW spokesman in Leipzig, Jochen Muller, said that the manufacture of the 1- and 2- series cars had come to end on Friday and Saturday, whereas the production of i3 and i8 electric cars was running as normal. Moreover, he said on Sunday that the plan was to resume production on Tuesday, but BMW said on Monday that the situation is not likely to change this week.

BMW said it doesn’t know the range of financial effect or disruption in production and sales caused by the break in production. Nevertheless, they still hope to restart everything alright next week, but wasn’t certain that would be possible.

By 12:20PM GM+2, BMW shares were trading about 0.18% higher at EUR84.41. Its market cap is 54.94B, with P/E ratio of 7.54 and a dividend yield of 4.14%. Analysts at Equinet, a brokerage, said the costs to the company were likely manageable unless the interruption of production continued for several days.

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