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Mercedes-Benz Korea Posts Highest-ever Results, While BMW Korea Records Loss
Stark Contrast Among 3 German Automakers in Korea
Mercedes-Benz Korea Posts Highest-ever Results, While BMW Korea Records Loss
  • By Jung Min-hee
  • May 2, 2019, 11:36
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Three German automakers showed a stark contrast in terms of business performance last year.

Three German automakers, which lead the South Korean imported car industry, were in stark contrast in terms of business performance last year. Mercedes-Benz Korea paid out dividends based on its highest-ever results, while BMW Korea and Audi Volkswagen Korea struggled with heavy operating losses. In particular, BMW Korea received an emergency fund from the headquarters in Germany to make up for losses caused by a recall after a spate of engine fires. Other foreign auto bands also showed clearly contrasting performances.

BMW Korea saw its sales decrease 16.6 percent on-year to 3.03 trillion won (US$2.60 billion) last year and recorded an operating loss of 477.30 billion won (US$409.70 million), according to an audit report released on May 1. Its profitability was directly hit by the massive recalls of 170,000 diesel cars due to the faulty exhaust gas recirculation (EGR) coolers. As BMW Korea could not afford the costs, BMW AG injected 400 billion won (US$343.35 million) worth of funds into the local unit.

In fact, BMW Korea’s adjusted income from transfer prices surged by 400 billion won (US$343.35 million) from 94.80 billion won (US$81.37 million) in 2017 to 494.50 billion won (US$424.46 million) in 2018. Transfer price is an accounting practice that refers to the recalculation of prices of goods and services that are exchanged between the headquarters and overseas subsidiaries, affiliates or commonly controlled companies after considering variables such as exchange rates and price fluctuations. In short, the South Korean unit generated profits by setting the imported car price lower than that of transactions with the headquarters. Based on this, the headquarters covered a large portion of the recall costs in South Korea.

An account manager at BMW Korea said, “The headquarters in Germany provided financial support for us to maintain an operating margin of 3 percent. The money was counted as an adjusted income from transfer prices to strengthen accounting transparency.” With such full financial support from the headquarters, BMW Korea made a net profit of 62.50 billion won (US$53.65 million).
 

In contrast, Mercedes-Benz Korea had the best-ever results in terms of sales and profitability last year. The company logged 4.47 trillion won (US$3.84 billion) in sales, 154.70 billion won (US$132.74 million) in operating profit and 139.10 billion won (US$119.38 million) in net profit last year. Its performance reached a record high since the German automaker entered the South Korean market in 2003. Sales, operating profits and net profits all grew by 4.8 percent, 4.1 percent and 91.5 percent, respectively.

With the improvement in results, Mercedes-Benz Korea paid out 55.60 billion won (US$47.74 million) in dividends. Only Mercedes-Benz Korea and Hanbul Motors, a South Korean importer and distributor of Peugeot and Citroen vehicles, paid out dividends among the eight foreign car brands and official importers and sellers which had a fiscal year-end on the last day of December.

Audi Volkswagen Korea paid back a loan to its headquarters in Germany despite large losses. Its sales showed a whopping 253 percent jump on-year to 1.13 trillion won (US$967.63 million) last year, while its operating loss remained in the 60 billion won (US$51.52 million) range for two years in a row. Nevertheless, it paid off 100 billion won (US$85.81 million) of loan to Germany’s Volkswagen AG Group last year.

Volvo Car Korea’s annual sales topped 400 billion won (US$343.14 million) for the first time last year. Fiat Chrysler Automobiles Korea (FCA Korea) saw its operating profit shrink 77.9 percent on-year to 3.80 billion won (US$3.26 million) last year, with inventories mounting and dealer incentive costs doubling from 12.80 billion won (US$10.98 million) in 2017 to 24.70 billion won (US$21.19 million) in 2018. Forza Motors Korea (FMW), an official importer and distributor of Ferrari and Maserati cars in South Korea, suffered negative growth both in sales and profitability due to sluggish sales.