Update: BMW has responded to the reports of its difficulty in cutting its global overhead with a flat denial. The company says it has already had over 1,000 employees sign termination agreements, in stark contrast to the reports of only a few hundred terminations, first made by Germany’s Handelsblatt. BMW insists its plan to cut costs by 6 billion euros by 2012 is “fully on track”, according to Automotive News Europe.

Original: Rising fuel costs and shrinking demand aren’t the only worries facing carmakers. As the Detroit 3 have illustrated recently, reducing operating costs is a difficult and sometimes painful business. Despite strong U.S. sales, reports have stated BMW is also facing difficulty in shedding costs in its global operations.

Over 8,000 BMW workers are to be put out of work this year, with many having already taken their last paycheck. But rising materials costs and the weak U.S. dollar are undoing the savings made by the lay offs. The company has a goal of reducing overhead by 500 million by the end of 2009, but the chances of reaching it are diminishing daily, reports Automotive News Europe.

Nevertheless, the company will soldier on. Already most of the 5,000 temporary jobs targeted have been cut, but a wage agreement on full-time employees is hamstringing further efforts. The agreement prohibits firing workers until the end of 2013.

The inability to cut back labor costs could explain why BMW is moving some of its production from contract producers like Magna Steyr to in-house facilities. The X3 is due to cease production in Austria in 2010, when it will move to BMW’s Spartanburg plant alongside the X5 as part of BMW’s plan to build models in the markets where they sell best. The X1 that had been planned to replace it in Magna’s facility has been redirected to BMW’s own Leipzig plant. The contract maker will produce the Mini SUV for BMW, however.