FRANKFURT - BMW's cost cutting measures have begun to gain traction as the German premium automaker posted a better than expected 2009 profit despite lower vehicle production, Reuters reported.

BMW said on Thursday its pretax profit rose 18 percent to 413 million euros ($560.4 million), easily surpassing the 253 million euros forecast by analysts, even though auto production fell 13 percent during the same period.

"We are cautiously optimistic going into the new year," CEO Norbert Reithofer said, adding new models and demand in markets such as China and Brazil would continue to drive sales growth.

BMW earnings surpassed those of rival Mercedes-Benz but were behind those of Bavarian competitor Audi, which benefits from the economies of scale at parent company Volkswagen .

This becomes increasingly important as premium carmakers are forced to move down-market, offering smaller, less lucrative models and engines needed to cut their carbon footprint ahead of ever-stricter emission regulations due in Europe starting in 2012.

Net profit sank 47 percent to 210 million euros. It was the group's lowest annual net income since a 2.5 billion euro loss in 1999 but the figure beat analyst expectations for 174 million.

BMW said it had a loss before interest and taxes in the automotive segment but a profit before interest and taxes of 93 million euros in the fourth quarter.

BMW has forecast group retail volumes would grow by a single-digit percentage rate this year to more than 1.3 million vehicles thanks in part to the arrival of new models, including the 5 series sedan that hits dealerships this month and the September debut of the Mini Countryman SUV.

For the first two months, vehicle sales grew a little more than 15 percent although the rate was flattered by extremely weak comparison since demand for all premium car brands plummeted early last year.

BMW holds its annual news conference on March 17 in Munich, where it traditionally issues its full-year earnings guidance. It will hold an analyst and investor conference the following day.