UPDATE 2-BMW says plans multi-million euro annual cost cuts

Wed Jun 18, 2014 1:34pm EDT

* BMW says to embark on new round of cost cuts

* BMW says to save hundreds of millions of euros

* BMW seeks 3-4 bln euros in annual savings -magazine

* CEO has asked McKinsey to review costs -magazine (Recasts, adds BMW statement clarifying cost cuts amount to hundreds of millions)

By Edward Taylor

FRANKFURT, June 18 (Reuters) - German luxury auto maker BMW on Wednesday said it plans to save several hundred million euros in annual costs to offset higher expenses for investments to meet tougher emissions standards and develop new electric and hybrid cars.

The world's largest luxury carmaker has promised higher profits and sales for 2014 but faces rising expenses as it rolls out new models, expands its production capacity, and adapts to tougher environmental rules.

In a statement on Wednesday, BMW said in order to remain competitive amid rising costs, the Munich-based manufacturer would seek to lower annual expenses "by several hundred million euros a year."

Earlier this year, German manufacturers balked at new European Union anti-pollution rules which demand that average emissions are cut to 95 grams of carbon dioxide per kilometre from a current limit of 130 grams.

The European Commission, the EU executive, proposed the target should apply from 2020, but full implementation has been delayed for a year following months of negotiation.

BMW's European fleet had average CO2 emissions of 133 grams per kilometre in 2013.

The cost of investing in new cars, including a new generation of the Mini, as well as a raft of smaller models such as the 2-series, lowered BMW's automotive EBIT margin to 9.4 percent in 2013, from 10.8 percent in the year-earlier period.

In the first quarter BMW's automotive EBIT margin, the best gauge to compare profitability with peers, was 9.5 percent, higher than the 7 percent achieved by rival Mercedes-Benz Cars but short of the 10.1 percent achieved by Audi.

BMW's renewed focus on costs comes after key rival Daimler, which makes Mercedes-Benz cars, said in April it would seek more cost cuts to narrow its profitability gap with peers.

Germany's Manager Magazin on Wednesday reported that BMW would embark on a new round of cost cuts to achieve annual savings of between 3 to 4 billion ($4-5.4 billion), citing company sources.

A BMW spokesman declined to comment on the report other than to say, "Generally speaking we are continually watching our costs, and seek to maintain and enhance our international competitiveness. We seek to achieve a sustainable EBIT margin of between 8 and 10 percent, our strategy is based on this profit target."

Despite record sales and earnings in 2013, Chief Executive Norbert Reithofer is disappointed with the cost structures at Mini and the smaller BMW models, the magazine said.

For 2014 the auto maker wants to lower spending on research and development and focus on efficiency in an effort to achieve a "significant rise" in pretax profit.

Earlier this month, the Munich-based maker of BMW, Rolls-Royce and Mini cars said it was reviewing the cost structure at individual factories as part of a process of deciding whether they were still competitive.

($1 = 0.7383 Euros) (Reporting by Edward Taylor; Editing by Elaine Hardcastle and David Evans)