BMW to increases prices, cut production and reduce the number of leases

3-Series | August 5th, 2008 by 8

This past week, the auto industry has been shaken by the very pessimistic reports and disastrous quarterly earnings reported by some of the largest automakers. …

This past week, the auto industry has been shaken by the very pessimistic reports and disastrous quarterly earnings reported by some of the largest automakers. BMW is one of them and with 1.6 percent drop compared to August ’07, the future does not look too rosy.

While the overall sales for the BMW Group are up 2.2 percent (thanks to the Mini brand mostly), the year-to-date sales are down 8 percent, which for a giant automaker as BMW, can only announce new changes in their business strategy.

Last Thursday, in an important BMW Board meeting, the rumored X7 project was erased from BMW’s future plans, but that’s far away from the bad news to come. BMW is raising prices next year, with some of them being implemented by the end of this year for some of the MY09 cars.

Wait, did you think this was all? No, in the same time with the price increase, BMW will manufacture fewer vehicles in 2009, with a rumored number around 25,000 less cars globally, and it will sell 40,000 fewer units on the U.S market.

How is this going to affect the buyers? Jonathan Spira, a well known and respected Business Editor for BMWCCA, explains it very well:

This will change as BMW will return to a pull-oriented (versus “push”) sales strategy that will limit sales volume, requiring customers not only to pay full price but to wait for cars rather than being able to drive them off the lot (something practiced almost universally except in the United States).

Paying MSRP for a bimmer is something that us, BMW fans, have not encountered over the last few years, with the exception of a few new models that weren’t discounted the first few months.

And if this wasn’t bad enough, then the 60% of the BMW owners that are part of the leasing program, are in for a big surprise as well. The highly subsidized BMW leases were a gimmick that allowed many buyers to get some amazing deals on some quite expensive BMW models. It was pretty much common to lease a $40,000 bimmer for a monthly payment of around $500, a much lower payment that BMW’s competitors with cars in the same price range.

BMW will begin offering higher incentives to customers that are looking to finance a car or cash-purchase it, rather than going through the famous BMW Financial Services program. As a paranthesis, I remember leasing my previous BMW 325i with a finance rate of around 1% over a 3-year period, which combined with higher than normal residual values, it allowed me to lease my $36,000 car for $400/month.

There are many other angles here and tons of other details that can be discussed, but I will let our dear Jonathan Spira take over and give you some more detailed information over at BMWCCA forum.

As always, please feel free to leave a comment and tell us what you think. Let’s start a conversation on this and see what your future plans are.

P.S If you’re on the market for a new bimmer, now it’s the time to analyze the facts at hand and decide fast on which car to get.

Thanks again for the link Jonathan!

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  • Mark

    Does this mean that the prices will go even higher than the recent increases (packages, metallic paint, D&H, etc)???

  • Lance

    I am highly dissapointed with BMW’s so called strategy number ONE. This whole thing about cutting cost is just something upsetting because the management team is trying to convince the shareholders that BMW will treat them better, especially with the new CEO. They are cutting 8000 jobs, which will definately affect the remaining employees in the company emotionally. To put a set target amount for reducing raw materials costs is just irresponsible as can be seen now that theose targets were rubbish with a slight change in economic situations. That’s why when they annouced these plans, the share price didn;t move that much, people don’t believe that what management is saying about profits and the way they are going to go about it is credible. And now the share are trading at about 26euros after the bad news. What I am also irritated about is management’s ignornace about its rivals: they said that they do not feel threatened by Audi when very clearly they are increasing their market share and selling 80% the number of cars that BMW is selling. The market isn;t growing that much, but Audi is gorwing, which means that some of those could have been BMW’s customers! Their target of remaining the largest is lso being achieved in a very abnormal way, they are introducing so many new models to try to boost this target of 1.8million by 201? like the X6, PAS, etc. what is this saying about existing old models like the 1,3,5,7? Are they decreasing market share to competitors? because their sales volume is not increasing that much as a group. Not only this, now they want to increase prices and pull out of markets that are not giving them big enough profits, the Audi and Merc guys must be smiling, what great opportunities for them. This thing about making customers wait in the US is also going to be a problem, BMW is now deliberately trying to cause customer inconvenience and this will fall flat in their faces very soon! I can understand them trying to please shareholders and trying to gain their trust in profit targeting, but is this the way to go about it? The management team is upsetting employees of the company, upsetting customers of the company and that doesn’t translate into shareholders’ happiness, nor company success. In fact, I doubt that this company will remain the largest premium car company in the world in the future. Just because the management team and new CEO tries to please shareholders: throwing away all the BMW has achieved in the past 10 years! This is just my opnion and I am very dissapointed!

  • Lance

    just to add another comment. they try to please shareholders so that the share price would increase, if you track the records, there were no significant increases, complete opposite of what mnagement expected. The new CEO and his team have also voiced the company’s German orientation and they will also be German orientated, that’s why most pars are produced in Germany. If they were serious about cutting costs, they could produce the same parts in China with the same quality controls. Contrast this with previous BMW CEO (Panke) saying that BMW is a global company. With the current situation, employees would be demotivated, customers will be irritated and normally they move away from brands that are arrogant (things such as you want our cars, you must wait) and shareholders would see this developing and reconsider whether the company is such a good investment afterall. Once again, my opnion and if I was a shareholder, I would not invest in BMW but rather the VW Group although I’m a BMW fan and don’t particularly like Audi.

  • ferenckovacs

    I hope the EU prices will be the same (much higher level than now at the USA). While you have a great new extra X5 about $80.000 we get it on 80.000 euro … thats the point. Can I say it is not fair?

    Our interest rates are 4 to 6 percent too… not 1%.

  • Kraftwerk

    this is what BMW needs, in order to improve their shitty designs on the latest models.

  • http://www.bmwblog.com Horatiu B.

    @ferenckovacs: I’m sure that both EU and US prices will go up, so the difference will be pretty much the same. I do agree that we have it pretty good here and we shouldn’t complain.

    @Kraftwerk: Which car do you dislike the most?

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