BMW (FRA:BMW)

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===The Future of BMW's Product Lines Lie in the Importance of Fuel Efficiency=== ===The Future of BMW's Product Lines Lie in the Importance of Fuel Efficiency===
-While BMW is a producer of larger high-performance vehicles, as concerns over [[Global Climate Change]] have grown alongside [[Oil Prices]], BMW has been placed under a variety of pressures from regulators and consumers to improve fuel efficiency. While BMW is currently developing [[Hybrid and Fuel Cell Vehicles]], the immediate mainstay of BMW's campaign to improve fuel efficiency is a program known as "EfficientDynamics." This program utilizes existing modifications of existing technologies to improve efficiency. The major aspects of this program include: improving engine efficiency by using computer optimized direct injection, automatic engine shutoff when the vehicle is not moving, regenerative braking, electric power steering (more efficient than standard hydraulic systems), improved aerodynamics, and low resistance tires.<ref>[http://www.bmw.com/com/en/insights/technology/efficient_dynamics/innovative_technologies/gear_shift_indicator.html BMWEfficientDynamics]</ref> +While BMW is a producer of larger high-performance vehicles, as concerns over [[Global Climate Change]] have grown alongside [[Oil Prices]], BMW has been placed under a variety of pressures from regulators and consumers to improve fuel efficiency. While BMW is currently developing [[Hybrid and Fuel Cell Vehicles]], the immediate mainstay of BMW's campaign to improve fuel efficiency is a program known as "EfficientDynamics." This program utilizes existing modifications of existing technologies to improve efficiency. The major aspects of this program include: improving engine efficiency by using computer optimized direct injection, automatic engine shutoff when the vehicle is not moving, regenerative breaking, electric power steering (more efficient than standard hydraulic systems), improved aerodynamics, and low resistance tires.<ref>[http://www.bmw.com/com/en/insights/technology/efficient_dynamics/innovative_technologies/gear_shift_indicator.html BMWEfficientDynamics]</ref>
However, BMW makes the most money selling its larger, more luxurious automobiles.<ref>[http://online.wsj.com/article/SB121814302890321865.html?mod=rss_whats_news_us WSJ: Europe's Luxury Car Makers Feel Pain]</ref> Yet as [[Oil Prices]] continue to increase BMW has responded to consumer demands by producing smaller vehicles such as the 1-series, mini cooper, and compact X3 SUV. Over the past several years sales increases for these smaller vehicles has been the main driver for the company's overall sales growth. This trend toward smaller cars is expected to continue as energy prices remain high, presenting a challenge for the company's long term level of profitability. However, BMW makes the most money selling its larger, more luxurious automobiles.<ref>[http://online.wsj.com/article/SB121814302890321865.html?mod=rss_whats_news_us WSJ: Europe's Luxury Car Makers Feel Pain]</ref> Yet as [[Oil Prices]] continue to increase BMW has responded to consumer demands by producing smaller vehicles such as the 1-series, mini cooper, and compact X3 SUV. Over the past several years sales increases for these smaller vehicles has been the main driver for the company's overall sales growth. This trend toward smaller cars is expected to continue as energy prices remain high, presenting a challenge for the company's long term level of profitability.

Revision as of 09:08, March 8, 2012

Bayerische Motoren Werke AG (FRA:BMW), more commonly known as BMW, produces motorcycles and upscale automobiles. The company sells vehicles under three luxury brands: BMW, Mini, and Rolls Royce.[1] The company has offset some of the weakness in the US and Western European by exporting cars to emerging markets where growth continues explosively.[2]

BMW challenges to retain its market position as the international market for luxury cars grows ever more competitive, as many automakers, such as Hyundai with its Genesis sedan or Nissan's Infiniti brand, are increasingly successful in realizing the higher margins earned on luxury vehicles.[3]

Company Overview

BMW produces motorcycles and upscale automobiles under the BMW, Mini, and Rolls Royce brands. The Mini brand includes two models, both of which are small fuel-efficient hatchbacks. The BMW brand includes 10 model types, which are sold with a diversity of engines and other modifications. These vehicles range from the small 1-series all the way up to the large luxury 7-series sedan and X5 SUV. Finally, the Rolls Royce brand currently produces three models, two coupes and a sedan, the phantom. In addition, BMW offers financing for its vehicles through its financial services arm. The company also assembles cars from prefabricated components in Egypt, Indonesia, Russia, Malaysia, Thailand, and India.

Q1 FY2011 Earnings Summary

  • Revenues grew 29% to euro 16.04 billion.[4]
  • First-quarter net profit rose 400% from last year to $1.79 billion.

Key Trends and Forces

Emerging Markets Play an Important Role in BMW's Expansion

While new car registrations and sales have stagnated in Western Europe, the US, and Japan, BMW's sales in emerging economies of the BRIC countries have soared over the last five years. As such, many automakers have focused attention to those areas, making volatile sales there a crucial blow to overall operations. Despite volatile developing markets' auto sales though, BMW motorcycles play an important role in these markets by exposing consumers to the BMW brand early with a lower cost product in the hope that if this consumer grows wealthier he will remain loyal to the BMW brand and later purchase higher margin cars.

The Future of BMW's Product Lines Lie in the Importance of Fuel Efficiency

While BMW is a producer of larger high-performance vehicles, as concerns over Global Climate Change have grown alongside Oil Prices, BMW has been placed under a variety of pressures from regulators and consumers to improve fuel efficiency. While BMW is currently developing Hybrid and Fuel Cell Vehicles, the immediate mainstay of BMW's campaign to improve fuel efficiency is a program known as "EfficientDynamics." This program utilizes existing modifications of existing technologies to improve efficiency. The major aspects of this program include: improving engine efficiency by using computer optimized direct injection, automatic engine shutoff when the vehicle is not moving, regenerative breaking, electric power steering (more efficient than standard hydraulic systems), improved aerodynamics, and low resistance tires.[5]

However, BMW makes the most money selling its larger, more luxurious automobiles.[6] Yet as Oil Prices continue to increase BMW has responded to consumer demands by producing smaller vehicles such as the 1-series, mini cooper, and compact X3 SUV. Over the past several years sales increases for these smaller vehicles has been the main driver for the company's overall sales growth. This trend toward smaller cars is expected to continue as energy prices remain high, presenting a challenge for the company's long term level of profitability.

Commodity Prices Play an Integral Role in BMW's Profitability

  • Steel: One of the main ingredients in cars is steel, so increases in steel prices reduce BMW's margins. BMW can easily substitute another material for steel to reduce its costs, unlike almost any other input into car production, even labor.
  • Aluminum also affect BMW's margins as this metal is also a significant production input, accounting for around 300 pounds of a new car's weight.
  • Oil prices: Since consumers buy cars only infrequently, rising oil prices have only a limited impact on year-to-year car sales, but over time they cut into the industry's sales. Although oil prices have since moderated they will likely remain definitive in the future as the global economy recovers.

Competition

BMW's major competitors are DAIMLERCHRYSLER AG (DAI), Lexus (Toyota), Audi (Volkswagen, Infiniti (Nissan), and Cadillac (GM) However, BMW is unique amongst automakers because unlike these companies which make commercial trucks, lower market vehicles, or even buses, BMW focuses exclusively on the production of premium personal automobiles and motorcycles, under a small number of brands. The successful development of the Mini has allowed BMW to increase its market share and exposure to the small car market considerably without compromising the cache of the BMW brand.

References

  1. BMW 2008 Annual Report
  2. Seeking Alpha: BMW Shifts Cars From U.S.: A Sign of Decoupling?
  3. Seekingalpha: Will Hyundai's Luxury Car Be Like the VW Phaeton?
  4. Germany: BMW profit rose 400% record car sales in China.
  5. BMWEfficientDynamics
  6. WSJ: Europe's Luxury Car Makers Feel Pain
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