Autoweek: BMW falls victim to U.S. success

[Deutsch]

Definitely an interesting perspective the author has, especially in regard to Audi's lack of an intense U.S. marketing initiative (until now).

By GUIDO REINKING, AUTOMOBILWOCHE


If there were an award for last year's most profitable premium brand, it would be an unequivocal victory for Mercedes-Benz.

After cutting Chrysler loose, profits at Daimler, Mercedes' parent, have shot upward like an untethered balloon. None of its rivals could keep up.

There was a surprise in last year's results, though. Audi's profit margin topped BMW's. And Audi accomplished the feat without a financial arm of its own. Parent company Volkswagen handles the brand's leasing and financing.

BMW's comparatively bad showing demonstrates just how right CEO Norbert Reithofer has been in pursuing drastic cost reductions. Anyone who continually sells more cars without making more money is heading in the wrong direction.

BMW's results can be excused only partly by rising raw material prices. In the United States, BMW has become a victim of its own success. The weak dollar most hurts the import company selling the most in the United States.

But some of BMW's problems are homegrown. The 7 series has $2,500-$5,000 dealer incentives in the United States. BMW wouldn't need to support the vehicle if it were more attractive.

The U.S.-built X5 premium SUV scores well with U.S. customers and reportedly has 60 percent local content. But its expensive engines and transmissions still come from Europe and must be paid for with a weak dollar. So it hasn't had the effect on BMW coffers that the company was seeking.

In a perverse sense, Audi should be grateful to Ralph Weyler, its departed sales and marketing chief. Contrary to his clear mandate, Weyler only halfheartedly looked after the American market.

Weyler's inattention helped put Audi far behind Mercedes and BMW in U.S. sales. But as an unintended positive result, the dollar's weakness today is barely affecting the company.

That's certainly a silver lining. In fact, it makes one wonder if the folks at Audi might be secretly hoping for Americans to buy a record number of BMWs again this year, too.

Guido Reinking - AutoWeek Magazine

 

[Tarek]

Interesting

 

[coolraoul]

Interesting.
However i think Audi is all wrong. They have no plant in the US from what i know, so the few cars they sell in the still world's biggest market, are at a high cost.

MB here benefits from its plants in the US. Maybe thanks to Chrysler, they were quite present and have built Tuscaloosa to build all the SUVs...

BMW and MB are developping their plants in the US to respond to the weak dollar, and i think Audi shouldn't stay away from this very important market.

However, Audi is very strong in China, and it's very important too. So each have their strong and weakpoints, and have to work to stay in the race.

The weakest of the three is undoubtedly Daimler, with no big and protective shareholders...Audi is already in a group, and BMW is protected against a takeover by the Qandts... So Daimler can't fail, and need high share prices to reamin independant!

 

[Deutsch]

I don't know what much more can be done to counter the weak dollar other than building more cars here. I for one wish BMW would stop building their SAV's here, I couldn't care less for any of them personally. Don't think that's going to change anytime soon due to their "popularity" which I hope will soon wane. Regardless of booming markets elsewhere, the U.S. is still very relevant.

 

[Tarek]

Interesting.
However i think Audi is all wrong. They have no plant in the US from what i know, so the few cars they sell in the still world's biggest market, are at a high cost.

MB here benefits from its plants in the US. Maybe thanks to Chrysler, they were quite present and have built Tuscaloosa to build all the SUVs...

BMW and MB are developping their plants in the US to respond to the weak dollar, and i think Audi shouldn't stay away from this very important market.

However, Audi is very strong in China, and it's very important too. So each have their strong and weakpoints, and have to work to stay in the race.

The weakest of the three is undoubtedly Daimler, with no big and protective shareholders...Audi is already in a group, and BMW is protected against a takeover by the Qandts... So Daimler can't fail, and need high share prices to reamin independant!

Quite Right Raoul,Audi is making the same mistake here i believe,here in Cairo MB and BMW have huge plants that makes three model each with diff variants.MB makes the S,E,C and they are planning on adding a SUV line and BMW is goin well with 7,5,3,X3 and thinking of adding the X5 to the process,with MB and BMW doin that here Audi has nothing but a piss poor network and all the cars are imported from germany not made here,so it's sales in the premium market is nothing compared to MB and BMW.

 

[coolraoul]

Yeah, but Audi is very strong in China... MB and BMW are investing much in China and could soon be strong there too, but in the meantime Audi is beginning to consider a US plant...
i've read they have stopped the Hybrid Q7 because of too low dollar (given that hybrids almost only sell in the US)...

smart also, will sell a lot in the US, but will hardly win any money because of this low $...

Concerning BMW, I think part of their "problem" could also be named EfficientDynamics. They have integrated all the expensive stuff in their cars for no premium, so their profit are weaker on each cars...Whereas MB will offer all this for a little premium (around 600€ from what i've read)... However maybe it will be a "decisive" sell argument to have this ED integrated in the car for free, i don't know... It's sure is better for the customer, and for the image of the carmaker, to offer all this for free, and much earlier than the others!

 

[Tarek]

Well IMO Audi should open a plant whenever MB and BMW have theirs if they wanna really compete with them,it's not only good for sales and profit but also for brand recognition,the more ur cars are seen on the streets the more u r well known and more and more clients will enter ur showroom.

As for BMW yeah integration of ED in almost every model including the entry level ones has it's disadvantage profit wise that's why MB doesn't offer across the entire range yet that's how i guess it,but on the other side it's good for BMW buyers and thier image.

 

[EnI]

Beside higher raw material prices, higher energy prices, weak USD, higher marketing expenses BMW are also hurt due EfficientDynamics program.

Why?

ED R&D have been costly, and so is marketing. Yet BMW do not charge premium / extra for the ED, but offer it as standard in almost any car offered. BMW believe benefits of such strategy will be long-term: sales could go up due ED features (lower fuel consumption - competitive advantage), and even more important: ED will bring BMW brand an image of a pioneer / leader in Clean Energy solutions among premium brands. Mind that Hybrid & Hydrogen solutions are also a sub-parts of ED program.

But investors always want to see immediate results & growth rates / profit margins. Not talking about the Quandts but the investments funds.

 

[Deutsch]

ED could really end up paying BMW back in the future, so as long as they stay at the forefront of new alternative energy in-car solutions. Another thing that could happen and is more than likely; BMW may end up doing so well in the emerging markets that money lost here will be more than made up for in those markets.

 

[Merc1]

Hmmmmm...they've been saying this about BMW for years now. Selling more cars and coming out with even more models, but not making any more money. We can go into the various reasons why, but if it isn't corrected there is going to be trouble. More money has to come in to keep an ever expanding product line up to date.

To say that Audi isn't harmed by the currency problem is true, but the reality of it is that they don't sell anything here to begin with. VW/Audi of America hasn't made a profit in years. To excuse this on some nonsense about not being affected by the dollar is ridiculous. Fact is Audi should have built a plant here years ago, VW especially. You develop a hybrid and then turn around and can't sell it in the world's biggest hybrid market? A U.S. factory would have solved this problem.

M

 

[CorpusCallosum]

This expansion of the model lineup and the income being spent on all the different iniatives costs BMW money. BMW are currently working towards the profit point on this investiment and then we will start to see some major profits. You can't expect BMW to pursue the major changes that have been underatken in the past decade and have immediate financial results. BMW have invested into the future and they will be very healthy for it...

The old saying, " Have have to spend money to make money."

 

[EnI]

Audi has one big advantage. It is called Volkswagen AG.

R&D (eg. TDI engines, DSG gearboxes etc), purchasing, production etc. all can be cheaper due the Group synergies.

BMW AG is a relatively small independent company, and that has its price. EG. Porsche who was in a similar position did a better job - making alliance with VAG - to get some benefits from the synergy.

BMW have been too independant for their own good. The only joint-venture programs were the MINI engines (first Chrysler & Toyota, now PSA Peugeot), and the Hybrid JV with DCX & GM (and later with Daimler). All the other stuff are developed, purchased, produced, marketed alone by BMW. And that costs.

Zaha Hadid's Leipzig plant wasn't cheap either. Nor was BMW Welt. F1 involvement is costly. So it is the sailing team. Marketing expenses are huge.

And the weak dollar. C'mon - US are the biggest BMW market. With bargain prices. If there wasn't an uber-successful leasing & used-cars program s (where BMW make HUGE money) US division would be deep in the red numbers.

The future is not so gloomy ... not now when the recession is knocking on our doors ... since it can make all the invested money producing worse output than planned.