calpalmer

I'm not sure you're right in this statement. Here's a quote from the WSJ article on BMW AG's press release:
"BMW's bid to boost sales volumes appears to have been eroding the company's profitability for some time. While its auto sales rose to 1.5 million cars in 2007 from 1.05 million cars in 2002, operating margins for that segment shrank to 6.4% at the end of 2007 from 9.2% in 2002. Currency factors, rising investments in fuel-efficient technology, the rising price of raw materials, as well as slumping demand in the U.S., have contributed toward eroding profits, the company says."
That erosion in margin is including the "bolstering" effect from other countries. I don't know what their equity appreciation has been in the same period ... wait, yes I do, here it is: it's negative, they're trading near a 5-year low stock price at $27.36. See the chart link for BMW AG stock chart. BMW AG 5 Yr Stock Price
Hence, financial results from an investor point of view are nothing short of miserable lately. Loyalty be damned, they intend to turn the company around, and that means significantly higher pricing....

Cal

JSpira

If revenue holds steady and net profit falls 33% (year-over-year), then the answer is yes.

JSpira

Danke!

(and it's MiNi)

slickE60

Why do you concern yourself with such petty differences?

pennetta

I finally read your original post and I see what you are talking about, but it appears to be a second quarter problem. Their press release looks like it was directed at irritated shareholders. The US economy is going through some tough times since last fall and it would be unrealistic for BMW to feel that they wouldn't get affected. Most car companies selling in the US have seen a decrease in sales, BMW's sales have held steady showing that maybe they are doing something correct. The US is looking for "value" right now and I don't think going from a Push selling strategy to a Pull one will make things better for them.
If BMW makes drastic changes on how it sells to customers it will lose more market share than they are anticipating.
They state that buying cars off the lot, which most US buyer do, will no longer be their business model. So they will raise prices, remove financing incentives and change the way US consumers want to buy their cars by making them wait; and BMW does not feel it will jeopardize their market position. If I was an investor, I would be pissed now!
Once you lose a loyal repeat customer, they may be lost for a very long time. I owned multiple Mercedes Benz's, car after car, until I switched to BMW in 1997 because I felt that MB was getting to be an old mans car (image, styling). Since then I have had four consecutive BMW's and was considering my next car to be a BMW. Once I leave for another brand, there is momentum for me to stay with that new brand until something pushes me away again.

Lancaster

No problem, I was replying to Penneta but should have made sure I quoted...

Lancaster

Some of what you say makes sense but I cannot agree with the above statement. When it comes to cars, copying the US is not chic. In fact, if you think about it, you could argue that US customers are following European chic by buying European cars! In fact, I think they mostly buy them because they are very good cars.

I think that BMW have positioned (in marketing terms) their cars in the US at a lower position than in Europe - many US owners seem to have large engined, highly specced models but these are much more exclusive (= more expensive) in Europe. As their initial customer base in Europe was originally higher priced, it didn't make sense to grow sales in Europe by price cutting. Better to protect that market and use the US for growth albeit at lower margins. I have a feeling that the US may well have been a lower cost market for them to sell in as it is one homogeneous market having pretty much the same rules and regulations across the whole country. Europe is improving but there are still differences in regulations and language between countries. Reading between the lines of the original article cited, I think they may be looking to move the brand in the US up a bit in coming years - though increasing US production will commit them to keeping sales up. These two actions do not sit well with each other and ultimately, I suppose my instinct is that the increased US production will tempt them to start pushing volume again. Also, it is very difficult to move a brand up market after it has been at a certain position for some years. It is not enough to simply put up prices!

If you are still awake after reading the above, I salute you! Just do not get me started on what the US and Europe are letting China get away with...

pennetta

My opinions are based off of the lower end BMW models available in Europe. You have twice the engine choices and they are all smaller, lower end model choices. Comparatively lower end models dilutes the European exclusiveness that BMW has in the USA. Also every time I go to Europe I have BMW and MB taxi cabs picking me up at the hotels and airports, that can't help with the perception of prestige either.
It is interesting about the US being a cheaper market for BMW to supply to because of the standardization of equipment and safety regulations, never thought of that.
I think Lexus, Infiniti and Acura would love for BMW to raise pricing, limit availability and remove pricing supports of subsidized financing. If their (Lexus, Infiniti, Acura) cars become more hard edged, then BMW will quickly lose market share.
I hope BMW does not drastically change its business model here. I do have a question, are VW more expensive in Europe and cheaper here as well?

Lancaster

Lol - Do you feel more exclusive in a European BMW taxi or one of the wallowy yellow cars in NYC!

Seriously, you make a good point.

Bringing out cheaper models can affect a brand but BMW have been have been quite clever in positioning each of these cheaper models at the top end of their respective sectors.

The key comparison here is where the European upper models are positioned relative to the US. One important aspect of positioning is what type of consumers make up your target market. Models like the 550 are aimed at a higher earning consumer in the European market.

In Europe someone earning around $150,000 to $200,000 might only be driving a 520d these days. Would a US consumer with those earnings be able to afford a much bigger model?

I don't know the relative pricing of VW, but they have their own pecking order in each sector. They are viewed as reliable and slightly up market over here. It is complicated by the fact that their parent company builds a number of models in each sector (based on common components) so that they do not miss out on any large group of potential customers.

For example they have Audi, VW, SEAT and Skoda. If you take the Audi A4 as an example, there was also a VW Passat (slightly cheaper but same size) and a Skoda, which all shared common components but were carefully positioned to capture different consumers. This appears to work very well. I say "Were" because I do not know if the current models still share a lot of key components (engines, floorpans and gearboxes) though I suspect they do.

Do you think Lexus, Infiniti and Acura have the same cost pressures as BMW?

pennetta

I remember back in 2004 studies showed that the average 545 purchaser had a household income of $250,000 yr and the 530 buyer was at $150,000. Those numbers probably still hold true even though the incremental cost for the 545 over the 530 was only $100-150 more per month on a lease.

I haven't heard that the Japanese luxury brands were having unusual financial pressures other than Nissan/Infiniti (which has had for many years). Lexus has seemed to be the victor in the Japanese luxury brands, followed by Infinity then Acura.