UPDATE 1-BMW prepared for more discounts in 2013
* BMW says earnings targets include budget for incentives
* Discounts seen not as steep as in 2012
* Europe in particular could put pressure on BMW prices (Adds details, background)
FRANKFURT, March 20 (Reuters) - Luxury carmaker BMW has budgeted for more discounts in 2013 and does not see that threatening its outlook for stable earnings, its finance chief said on Wednesday.
Discounting has been a widespread industry problem, especially in Europe where demand is weak and some manufacturing plants are only running at half their capacity.
Finance chief Friedrich Eichiner told analysts that the company had budgeted for an increase of up to one percent in 2013 in the combined discounts given to customers over the previous year's level.
"We cannot rule out that there is further pressure in the pricing side coming, especially in Europe," Eichiner said during BMW's annual analyst conference, broadcast over the internet.
Germany's BMW expects stable group pretax earnings but a lower automotive operating margin dropping to 8-10 percent from 10.9 percent last year.
According to the CFO, BMW has factored into its expectations the risk that sales prices could drop by 0.5 percent to 1 percent in 2013 after incurring a drop of 1 percent to 1.5 percent last year.
In addition to the volume of cars sold, carmakers' profits are heavily impacted by the specific mix of its sales - how many lower margin Mini Ones are sold versus higher margin BMW 7 Series, for example - as well any discounts.
Carmakers are often loath to provide guidance on the level of their discounting, partly because it is sensitive information that can help their competitors.
Premium carmakers BMW, Audi and Mercedes-Benz all offer discounts but analysts warn that they risk inflicting lasting damage to their image should they develop a reputation for giving high incentives to customers.
Fiat Chief Executive Sergio Marchionne sparked a public feud with Volkswagen that raged for two months after he accused them of leading the industry into a "bloodbath of pricing". (Reporting by Christiaan Hetzner; Editing by Elaine Hardcastle)
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