Shifting Gears: BMW to Cut Production and Raise Prices

Jonathan Spira · 08-02-2008, 12:43 AM

BMW will cut production, shift allocations to "high-demand" markets, and raise prices world-wide, the company announced in a conference call yesterday. The interim call, noted Dr. Michael Ganal, member of the board of BMW AG responsible for finance, was held "earlier than usual" given a confluence of developments that are adversely impacting the company's profitability.

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Board of Directors, BMW AG (left to right) Ernst Baumann, Dr. Herbert Diess, Frank-Peter Arndt, Dr. Michael Ganal, Dr. Norbert Reithofer, Stefan Krause, Dr. Friedrich Eichiner, Dr. Klaus Draeger

BMW's second-quarter net profit fell 33% to €506 million, a 33% year-over-year decline from €751 million. Revenue held steady, decreasing less than 1% to €14.6 billion.

The call heralded a significant shift in BMW's sales strategy as well as an indication that the company was facing a crossroads: market share versus profitability. BMW has used discounting and subsidized leases to increase market share, in particular in the U.S. but hasn't yet gone into the high-volume, hard-sell tactics that U.S. car makers have employed for decades. [In other news, G.M. yesterday reported a stunning $15.5 billion second-quarter loss, citing declining sales and charges taken for workforce reductions, plant closings, and the plummeting value of larger vehicles such as SUVs and trucks. Last week Ford reported an $8.7 billion loss.]

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). On a world-wide basis, BMW will "reduce production volumes and increase selling prices." BMW is not alone. This week Audi announced it is reducing its sales target in the U.S. from 100,000 to 95,000.

Ganal noted that the greatest impact to profitability came from the downward trend in pre-owned vehicle residuals. Another significant factor is the cost of raw materials such as steel. Speaking on the same call, Dr. Norbert Reithofer, the Vorsitzender (chairman) of the BMW AG board, noted that steel prices have increased by 60% in the last 12 months and crude oil prices have risen 73% since last summer. Foreign exchange rates, namely the U.S. dollar, British pound, and Japanese yen, continue to adversely impact profitability.

Reithofer did state that the decrease in U.S. sales will not "jeopardize our market position in the United States." He also noted other steps being taken, including expansion of production in the U.S. and China, an increase in the spare parts and equipment business for both BMW and Mini, a decrease in material costs per vehicle, a change in how planned car projects will be evaluated to ensure greater profitability, and a continued emphasis on fuel-saving technologies.

Jonathan B. Spira, Business Editor, BMWCCA.org

quandary · 08-02-2008, 12:44 PM

Maybe now BMW will regain its focus on the wants of the customers that made them successful rather mass marketing a less than BMW worthy product. I sure hope so.

BIMMIR · 08-02-2008, 03:16 PM

They could save a ton of money by phasing out some of the over controlling and troblesome computer technology and adding some simple, low cost tecnology. (For example - a dip stick & regular tires instead of run flats!)

328818 · 08-06-2008, 01:33 PM

Quote:

Originally Posted by Tim Bryant

They could save a ton of money by phasing out some of the over controlling and troblesome computer technology and adding some simple, low cost tecnology. (For example - a dip stick & regular tires instead of run flats!)

Tim,

Run-flat tires save lives. You have a choice. You can have yourself, wife, family, in one of two situations when a tire is punctured. A) Stranded on the side of the road in the way of traffic waiting for a tow truck driver to come help, hoping that some creep doesn't get to them first, or even worse a semi doesn't wipe them out. This is of course if control was not lost and the tire didn't blow, which can lead to a nasty crash. B) Drive the vehicle with the punctured tire to safety at speeds up to 50 mph, over 150 miles, bringing them to a safe place while keeping up with traffic and avoiding chances of a horrendous fate on the side of the road.

If you want low-cost technology, there are plenty of low-cost cars out there that manufacturers are practically giving away with a load of special financing and incentives.

quandary · 08-08-2008, 06:21 PM

Maybe it is an age thing (I'm over 60) but being able to change a flat tire was part of driving, and if you couldn't or wouldn't, you joined AAA of ALA. What happens if you puncture a run-flat and there are no dealers or tire shops which have a run-flat in stock and are capable of mounting it? You're stuck! Come on BMW, give your customers a choice.

My 335i will tell me when the oil is low (I actually like the check oil feature) but what tells me how much to add?

Technology is nice and useful until it is technology for technolgies sake or it is rammed down your throat. BWM should know the difference and give their customer a choice

Arash2002tii · 08-08-2008, 07:08 PM

Quote:

Originally Posted by 328818

Tim,

Run-flat tires save lives. You have a choice. You can have yourself, wife, family, in one of two situations when a tire is punctured. A) Stranded on the side of the road in the way of traffic waiting for a tow truck driver to come help, hoping that some creep doesn't get to them first, or even worse a semi doesn't wipe them out. This is of course if control was not lost and the tire didn't blow, which can lead to a nasty crash. B) Drive the vehicle with the punctured tire to safety at speeds up to 50 mph, over 150 miles, bringing them to a safe place while keeping up with traffic and avoiding chances of a horrendous fate on the side of the road.

If you want low-cost technology, there are plenty of low-cost cars out there that manufacturers are practically giving away with a load of special financing and incentives.

Or C) You change it yourself and keep on driving! People nowadays can't even change a god damn tire. And I'm 17! What the world is coming to, when a 17 year old can say people these days....

steven s · 08-08-2008, 08:42 PM

Quote:

Originally Posted by Arash2002tii

Or C) You change it yourself and keep on driving! People nowadays can't even change a god damn tire. And I'm 17! What the world is coming to, when a 17 year old can say people these days....

Not all cars come with a spare nor a place to store a spare.

az3579 · 08-09-2008, 10:38 AM

Quote:

Originally Posted by steven s

Not all cars come with a spare nor a place to store a spare.

Which is why BMW should put that spare wheel well in the boot and give customers a choice of whether or not it should contain a spare.

Jonathan Spira · 08-09-2008, 12:20 PM

Quote:

Originally Posted by az3579

Which is why BMW should put that spare wheel well in the boot and give customers a choice of whether or not it should contain a spare.

Well, some cars still do come with a well (and with a spare too, my 2008 has one) but I would wager that BMW wouldn't be able to win here. If they included the wheel well, customers would complain it's empty.

quandary · 08-10-2008, 05:09 PM

The whole matter still comes down to choice. Others like Audi give their customers a choice. BMW has chosen to ram their opinion down your throat.

I know, I chose to buy my 335i coupe and everyday I drive it I remember why I went back to BMW after owing an Audi TT and a Volvo S60R. Good cars, but driving them was not the same as driving a BMW. But BMW will again lose me a customer when the warranty expires in 2011 unless they get back to where they were when I bought my 323 Ci in 2000. I sure hope they do.

08-02-2008, 12:43 AM	#1
Jonathan Spira BMW CCA Member Join Date: Dec 2007 Posts: 346 Rep Power: 3	Shifting Gears: BMW to Cut Production and Raise Prices BMW will cut production, shift allocations to "high-demand" markets, and raise prices world-wide, the company announced in a conference call yesterday. The interim call, noted Dr. Michael Ganal, member of the board of BMW AG responsible for finance, was held "earlier than usual" given a confluence of developments that are adversely impacting the company's profitability. Board of Directors, BMW AG (left to right) Ernst Baumann, Dr. Herbert Diess, Frank-Peter Arndt, Dr. Michael Ganal, Dr. Norbert Reithofer, Stefan Krause, Dr. Friedrich Eichiner, Dr. Klaus Draeger BMW's second-quarter net profit fell 33% to €506 million, a 33% year-over-year decline from €751 million. Revenue held steady, decreasing less than 1% to €14.6 billion. The call heralded a significant shift in BMW's sales strategy as well as an indication that the company was facing a crossroads: market share versus profitability. BMW has used discounting and subsidized leases to increase market share, in particular in the U.S. but hasn't yet gone into the high-volume, hard-sell tactics that U.S. car makers have employed for decades. [In other news, G.M. yesterday reported a stunning $15.5 billion second-quarter loss, citing declining sales and charges taken for workforce reductions, plant closings, and the plummeting value of larger vehicles such as SUVs and trucks. Last week Ford reported an $8.7 billion loss.] 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). On a world-wide basis, BMW will "reduce production volumes and increase selling prices." BMW is not alone. This week Audi announced it is reducing its sales target in the U.S. from 100,000 to 95,000. Ganal noted that the greatest impact to profitability came from the downward trend in pre-owned vehicle residuals. Another significant factor is the cost of raw materials such as steel. Speaking on the same call, Dr. Norbert Reithofer, the Vorsitzender (chairman) of the BMW AG board, noted that steel prices have increased by 60% in the last 12 months and crude oil prices have risen 73% since last summer. Foreign exchange rates, namely the U.S. dollar, British pound, and Japanese yen, continue to adversely impact profitability. Reithofer did state that the decrease in U.S. sales will not "jeopardize our market position in the United States." He also noted other steps being taken, including expansion of production in the U.S. and China, an increase in the spare parts and equipment business for both BMW and Mini, a decrease in material costs per vehicle, a change in how planned car projects will be evaluated to ensure greater profitability, and a continued emphasis on fuel-saving technologies. Jonathan B. Spira, Business Editor, BMWCCA.org Last edited by Jonathan Spira : 08-02-2008 at 02:42 AM.

08-02-2008, 03:16 PM	#3
BIMMIR BMW CCA Member Join Date: Jul 2008 Posts: 256 Rep Power: 3	Shifting Gears They could save a ton of money by phasing out some of the over controlling and troblesome computer technology and adding some simple, low cost tecnology. (For example - a dip stick & regular tires instead of run flats!)

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08-02-2008, 12:44 PM	#2
quandary BMW CCA Member Join Date: Jul 2008 Posts: 24 Rep Power: 0	Maybe now BMW will regain its focus on the wants of the customers that made them successful rather mass marketing a less than BMW worthy product. I sure hope so.

08-08-2008, 06:21 PM	#5
quandary BMW CCA Member Join Date: Jul 2008 Posts: 24 Rep Power: 0	Maybe it is an age thing (I'm over 60) but being able to change a flat tire was part of driving, and if you couldn't or wouldn't, you joined AAA of ALA. What happens if you puncture a run-flat and there are no dealers or tire shops which have a run-flat in stock and are capable of mounting it? You're stuck! Come on BMW, give your customers a choice. My 335i will tell me when the oil is low (I actually like the check oil feature) but what tells me how much to add? Technology is nice and useful until it is technology for technolgies sake or it is rammed down your throat. BWM should know the difference and give their customer a choice

08-10-2008, 05:09 PM	#10
quandary BMW CCA Member Join Date: Jul 2008 Posts: 24 Rep Power: 0	The whole matter still comes down to choice. Others like Audi give their customers a choice. BMW has chosen to ram their opinion down your throat. I know, I chose to buy my 335i coupe and everyday I drive it I remember why I went back to BMW after owing an Audi TT and a Volvo S60R. Good cars, but driving them was not the same as driving a BMW. But BMW will again lose me a customer when the warranty expires in 2011 unless they get back to where they were when I bought my 323 Ci in 2000. I sure hope they do.