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Editorial: One Man’s Take On the State of BMW

Featured Posts, Interesting | January 6th, 2012 by 18
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The advent of the new year is often seen as a time to reflect on the happenings of the prior year, but also a time …

The advent of the new year is often seen as a time to reflect on the happenings of the prior year, but also a time to take stock of where one is at and where they are going. With the worldwide financial forecasts all over the map, and uncertainty the norm, sailing a car company over the year’s horizon will be a challenge.

The automotive industry doesn’t have the best margins to begin with, missteps in the market (or precipitous contractions in sales) can send a manufacturer into an unrecoverable tailspin. Just ask GM. Having your financial fortunes tied to a car company is not for the faint of heart.

But if you are financially tied to a car company, you could do a lot worse than being tied to BMW. So, this small article will present one man’s opinion of why that is and in the process raise what is positive and what is worrisome.

Editorial: One Mans Take On the State of BMW

 

The Industry Since 2008

The nadir of recent worldwide automobile production came in 2009, but started its decline coincident with the global financial crisis in 2008. Where production had topped 73 million units in 2007, it had fallen to only 62 million units in 2009. That drop hastened the collapse of General Motors and Chrysler. They were tough times for all manufacturers and, depending on the financial obligations to current and past employees and excess capacity, deadly. Jobs banks, health care benefits, and improperly managed expansion in prior years brought on crisis to the Big Three in the US.

BMW faired better. The product line and customer base were better insulated from the crisis. BMW had taken pains to manage capacity and their employee base. BMW (and other German manufacturers) did not appear to have the same structural issues that  the US Big Three did.

2010 saw a worldwide production of 77 million units and when the final count is totalled for 2011, it will be better. But the future forecast is still cloudy to opaque. There are financial forecasts that say 2012 will see a follow on global recession, the other shoe dropping as lack of consumer demand catches up to Chinese production and the Euro faces further stresses. We’ll have to wait and see, but again, in the thin margin realm of the auto industry, it leads to sleepless nights.

What Are BMW’s Strengths

BMW has the ability to profitably produce small batches of vehicles. BMW builds approximately 1.5 million cars a year currently. Toyota produces approximately that many Corollas in a year. That BMW is considered a premium brand is vital in the quest for profitability.

BMW has a three legged stool of design, engineering, and production processes that enable it to produce the varied set of vehicles seen streaming out of their plants. These three things allow them to maximize the differentiation of models while minimizing the differences in structural components needed to produce them. Flexibility of architecture and production processes has proven to be strengths of the brand.

In addition, it appears that all oars are rowing in unison, from upper management through the plant floor. BMW has been executing its Strategy One vision since 2007 and it extended the contract of Norbert Reithofer through 2016. Herr Dr-Ing Reithofer will guide the company through the introduction of several new, and unorthodox (to BMW enthusiasts), models including the new ‘i’ sub-brand and upcoming A and B class front wheel drive cars.

What are BMW’s Weaknesses

BMW is known in the US as the, ‘Ultimate Driving Machine’, and that image is toned down just slightly with the ‘Joy of Driving’ tagline in the rest of the world. But that appeal to the enthusiast driver is also one of the brands weaknesses. BMW does not have the volume of production to sell cars outside of the premium market. It has to be perceived as a premium brand to survive. But its enthusiast cachet also limits the potential luxury/premium buyer pool. Most customers don’t care as much about the driving dynamics as they do the brand image and the amenities.

Quite frankly Lexus and Mercedes Benz appeal to a larger segment of the luxury buyer pool than BMW can. And there is some perception that BMW is softening its models to attract that buyer. While features such as run flat tires and electric power steering are for efficiency, the Dynamic Damper Control and Integral Active Steering are examples of catering to a more luxury oriented clientele.

Another potential dilution is if EfficientDynamics becomes more about efficiency and less about dynamics. Yes, the legislation is demanding increasing reductions in fuel consumption, but at what cost to driving pleasure? And can someone tell me what the difference between ECO PRO and ‘limp home’ mode is?

Car companies go sideways when they ignore customers, just ask GM and Chrysler. BMW has a great customer base that is incredibly enthusiastic about the brand – the worldwide BMW car clubs are the envy of many manufacturers. But navigating a brand with difficult customer expectations through the changes necessary to grow market share will be difficult.

What Keeps BMW Up At Night

Two million is the number. Two million is the goal. Two million vehicle sales in a year is what BMW believes will keep the company independent. Yes, the Quandt family owns the controlling interest in BMW (at approximately 46%). But the Quandt family has numerous other holdings and in a pinch, given a financial crisis, the BMW shares can be used to stop the bleeding in another area. BMW is a stand-alone jewel that other, volume manufacturers, covet.

If you look at the top tier (the top ten) automotive manufacturers, there are only a couple that would be seriously interested in picking up BMW. GM is too busy rebuilding itself (and dealing with its own European problems with Opel) to be a factor. VW does not need BMW, Audi and Porsche cover the same segments. Toyota isn’t a fit and the Lexus and BMW brands would be redundant.

In my mind that leaves Ford and one other to watch. But Ford is coming off the sales of its European holdings and hopes to revive the Lincoln nameplate in the premium segment. But there isn’t a lot of product overlap between Ford and BMW, so its a better fit than most.

However, the potential shark in the water to me is Hyundai. Adding the 1.5 million units of BMW to the Hyundai volume puts the combined companies right at VW volumes. And there is virtually no product overlap at all (once the Genesis and Equus sedans are factored out).

All of that is, of course, mere speculation. As far as I know, there have been no strong rumors or rumblings. Coming off a worldwide
production downturn, and an uncertain future, is not the time that car companies get absorbed by their larger siblings. It’s when those companies are flush with cash during boom times that those transactions occur, and often to the detriment of all involved. Just ask BMW how the Rover deal went.

In the end, maybe the best prophesy of what lies ahead is repeating that ancient Chinese curse, “May you live in interesting times”. Happy New Year, BMW!

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  • http://twitter.com/EndrasBMW Endras BMW

    Interesting speculations Hugo. Thanks for the insight.

    • Fredyschiftan

      Dear Hugo it seems to me you dont know BMW enough !  This is not only a Car maker but a leader in what it does , all other Co. are looking at BMW in what they do and copy their strategy in the market, if BMW wont do good believe me ALL THE market will be at that time in serious trouble! The only reason some Firms are doing well is by Copying other succesful Brands like Hyundai and Kia who copy others and sell cheaper , this formula is done in so many other products. BMW is looking ahead for the next 7 or 8 years on their product lines taking in account the market changes.  It will still stay as no.1 Car Brand in the world for a long time, this Co. worked very Hard to get there and wont loose its reputation ( Volvo, Jaguar Audi, Land Rover . Saab  etc etc )   keep on BMW  my best wishes 2012 another best Year !

  • Ultimate Car Guy

    You appear to be contradicting yourself in this article.

    In one point, you’re saying that VW won’t be a good fit becasuse of the overlap with Audi/Porsche etc. But in another, you’re saying that Ford isn’t a good fit because there’s no overlap with any of its existing brands. Please clarify…

    • http://twitter.com/atr_hugo Hugo Becker

      Ford is a fit, there is virtually no product overlap at all – but Ford is still smarting from its foray into ‘captive’ European brands. They are currently focused on turning Lincoln around and also they want the Ford brand to be preeminent. While BMW may ‘fit’ from a product perspective, I do not believe that Ford is interested in pursuing BMW.

      Hyundai on the other hand . . . ;-)

    • Slomonov

      as a matter of fact, vw already has too many overlaps in their stable, porsche, bugatti, lamborghini, i wouldn’t mind adding bmw if i were dr. piech

      the bmwblog seems to be run by a troop of hyundai fanboys these days … just check their recents posts, why would german sell their soul to someone who once stole from toyota?

      • http://www.bmwblog.com Horatiu B.

        Or bmwblog is run by non-biased people.

        Horatiu Boeriu
        Editor-In-Chief
        BMWBLOG.com
        Facebook.com/bmwblog
        Twitter.com/bmwblog

        • Slomonov

          non-biased is all fine but your core audience are die hard bimmer enthusiasts. :-) i hope the return of the “ultimate driving machine” slogan is a good sign. if bmw needs money they could sell stakes to the middle east oil sheikhs or chinese governments like daimler does while retaining control over its operations.

          speculation is fun but if buildng dumb cars is better business why don’t they just start with corollas or accents?

          cheers,

          • http://www.bmwblog.com Horatiu B.

            I agree and we appreciate the core fans. Yet at the same time, we need to keep an open mind and see what happens outside of BMW also. It’s part of the process to get better at what we do.

            Don’t discard Hyundai though. Not a premium maker but an adventurous brand.

      • http://twitter.com/atr_hugo Hugo Becker

        We are not advocating that BMW be taken over by Hyundai. Just the opposite in fact, the idea that Hyundai could look at BMW as a possible target (and good product fit) has to be cause for concern of the independence of BMW (which I would like to see continue).

        If you are aware of Hyundai’s corporate history you are also aware that the blending of management teams would be difficult.

  • Silvers Kyle42

    BMW is DEFINITELY softening their new models

  • StraightSix

    It would be nice if BMW stayed independent at all times, but if different course takes it’s way, I would rather see that Hyundai owns it than VW group.

    • JohnC

      how would that be better? Hyundai’s philosophy is radically different from BMW’s. Hyundai is the LAST company I would like to see owning BMW.
      Perhaps BMW needs a new sub-brand? Like VW is to Audi. Competition would be tough though.

      • StraightSix

        Beacuse I think many buyers take BMW just beacuse of the reason it’s independet from all the rest, it’s not like what Passat is to Audi A4 or Golf to A3 you know?
        Now if BMW shared parts with the two mentioned, they might as well shut the place down.

  • http://www.facebook.com/rtcalo Ricky Calo

    I would love for BMW to same independent and keep churning out great driving enthusiast machines, however I have a feeling that won’t happen. Especially the latter which is already well in motion and helping BMW reach it’s sales goal. I just pray that BMW keeps making 1 or 2  enthusiast models like the 1M but at a more reachable price(around $42k) and more units.

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