BMW Group provided about 1 trillion won (US$861.33 million) of financial support to BMW Korea last year to help its Korean affiliate overcome the crisis caused by a spate of engine fires of BMW cars in Korea. The financial support reflects the German car company’s determination to normalize the operation of its Korean subsidiary and regain trust of Korean customers.
BMW Korea saw its sales fall by 16.7 percent to 3.03 trillion won (US$2.61 billion) last year and recorded an operating loss of 477.40 billion won (US$411.20 billion), according to the data from the Financial Supervisory Service on April 28. Recall costs caused by engine fires were reflected in the figures. Yet the company recorded 62.50 billion won (US$53.83 million) in net profit, including non-operating income.
BMW AG adjusted 494.50 billion won (US$425.93 million) worth of transfer prices for BMW Korea last year, according to the company’s audit report. Transfer price is an accounting practice that refers to the recalculation of prices of goods and services that are exchanged among the subsidiary, affiliate or commonly controlled companies after considering variables such as exchange rates and price fluctuations. BMW Group's headquarters transferred 494.50 billion won (US$425.93 million) worth of profits to BMW Korea last year and BMW Korea could record a net profit despite the large operating loss.
In addition, BMW Holdings B.V. lent BMW Korea 370 million euros (US$412.11 million or 478.45 billion won) of money with an interest rate of 0.60 percent. BMW Korea’s interest rate on loans from Citibank Korea stood at 2.43 percent. When considering interest rates in the financial industry and inflation rates, the headquarters practically provided operation funds without interest rates.
BMW Group's headquarters provided nearly 964.70 billion won (US$830.92 million) of money to BMW Korea, whose image was damaged by fire incidents last year. The figure was almost four times larger than the 220 billion won (US$189.49 million) worth of dividends that it has received from BMW Korea after entering the domestic market.