FRANKFURT -- Bernd Pischetsrieder and Helmut Panke have spent their first year at the helms of two of Germany's best-known carmakers trying to convince investors the high cost of massive product drives will pay off.
Only one of them appears to have succeeded.
Pischetsrieder brags that Volkswagen will launch an updated model variant somewhere in the world every three weeks this year, while Panke boasts that BMW has never before brought so many new models to market in such rapid succession.
Both companies will unveil significant falls in first quarter earnings later this week, but investors' attention is likely to focus on how long the pressure on profits will last.
Volkswagen's share price has dropped 12 percent since the start of the year, underperforming its European peer group by more than 12 percent, while BMW stock has risen just more than 1 percent, outperforming the sector by 4 percent.
Pischetsrieder has tried to help investors stomach some of the pain, warning that profits will be down significantly when it reports on Wednesday, as weak exchange rates, development costs and equity writedowns all weigh.
The average estimate from 22 analysts polled by Reuters put the group's first quarter pre-tax profit at $521 million, less than half the amount it made in the year-ago period.
VW has said it expects the first three months of the year to be its weakest quarter, and is betting on better business in the second half as new models, including the Golf, boost sales.
But after sharp falls in its sales in the United States and France in April, and the continued strength of the euro, which makes its cars more expensive across the Atlantic, some analysts remain to be convinced.
"After weak first quarter earnings, chances for a second quarter surprise on the upside are limited. On the contrary, it seems as if negative trends are accelerating," HVB analyst Albrecht Denninghoff, who rates VW "neutral", said in a note.
BMW GROWTH SPURT
Its focus on producing a smaller range of expensive luxury cars has traditionally kept BMW's profit trend roaring ahead of mass-market rivals like VW, but the company has tripled the number of model ranges it offers since the early 1990s and will have 11 product lines in its portfolio by year end.
Such ambitious expansion comes at a high cost.
Pre-tax earnings in the first quarter are expected to have fallen 25 percent when the company reports on Thursday, and the group has said it expects profits to be weaker in the first half as development and launch costs take their toll.
A Reuters survey of 21 analysts predicted pre-tax profit would fall to 762 million euros from more than a billion a year ago, while net income was also seen falling by more than one-quarter.
The company is unveiling an updated 5-series saloon, one of its main profit drivers, in the second half as well as a new small X3 SUV and a high-margin 6-series coupe, although it is aiming for flat profits over the year as a whole.
"BMW is ready to put on a spurt of growth," WestLB Panmure analysts said in a research note. "As of the second half, these investments -- which are already largely reflected in the profit and loss account -- will begin to pay off."
Although VW and BMW may both have to swallow high research and launch costs at a time when car markets in both Europe and the United States are weak, in the long term Pischetsrieder and Panke may be vindicated.
"VW and BMW are our two buys amongst the European assemblers right now," Commerzbank analysts said in a recent research note.
"We believe both will lead the group in terms of volume growth in 2004 and 2005 because of new product flow; something that typically is discounted in stock performance 12 months ahead."