Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
 Despite its reputation for performance, BMW has aggressively and effectively tapped demand for smaller fuel efficient vehicles. Demand for models such as the Mini and the 1-series has grown at double digit rates through 2008.[4] Since the early 2000s, BMW has been one of the first automakers to utilize flexible factories, which can produce more than one vehicle model at the same time.[5] This development has allowed the company to meet shifts in market demand more effectively than competitors, allowing sales to keep growing. Despite these innovative production schemes and the popularity of BMW vehicles, the company will still be challenged to retain its market position as the international market for luxury cars grows ever more competitive, as all major automakers seek to profit from the higher margins earned on luxury vehicles.[6] This scenario is especially worrying for BMW considering that J.D. Power ranked BMW's overall 2008 initial quality below the industry average, far behind luxury brands such as Lexus, Porsche, Mercedes, and Infiniti; all of which are in the top quartile.[7]
[edit] Business OverviewBMW produces motorcycles and upscale automobiles under the BMW, Mini, and Rolls Royce brands. In addition, BMW offers financing for its vehicles through its financial services arm. As of mid-2008 BMW employed 105,802 employees at 17 production facilities in Germany, Austria, Great Britain, the U.S., South Africa, and China.[8] The company also assembles cars from prefabricated components in Egypt, Indonesia, Russia, Malaysia, Thailand, and India.[9]    [edit] Financial ServicesBMW's financial arm has grown considerably over the past five years; with the loan portfolio growing from 1,623,000 contracts in 2003, to 2,630,000 at the end of 2007.[13] During 2007, 53.8% of BMW Financial's car loans were made in Europe, 32.9% in the US, and 13.3% in Asia/Oceania/Africa.[14] In the same year, 38.2% of financing contracts were leases, with the rest made for car purchases.[15] Despite the continued expansion of its portfolio, during the first half of 2008 BMW Financial's profitability fell 68% as economic slowdowns in Europe and the US increased defaults while also causing resale values for used cars to fall.[16] [edit] Trends and Forces[edit] BMW in Emerging MarketsWhile 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.[17] For example, since 2003 BMW's sales in Russia have quadrupled, and increased another 33% in the first half of 2008.[18] Through the first half of 2008, BMW sales in other parts of Eastern Europe and India grew at over 10%, while sales in China grew by 25.2%.[19] 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. [edit] Importance of Fuel EfficiencyWhile 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.[20] Similarly, sales of BMW's more efficient Diesel powered cars has increased steadily from 29% of sales in 2003 to 41% in 2007.[21] Although starting from far behind other European automakers, BMW improved its overall fleet efficiency by 7.3% between 2006 and 2007, which is four times the average improvement made by other producers.[22] Despite this improvement, at the end of 2007 BMW's average fleet efficiency was the second worst of the european automakers, followed only by DAIMLERCHRYSLER AG (DAI).[23] [edit] Smaller Cars mean Shrinking MarginsBMW makes the most money selling its larger, more luxurious automobiles.[24] 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. As a result BMW's margins have been shrinking for the past decade, being 9.2% in 2002, 6.4% in 2007, and expected at about 4% for 2008.[25] 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. [edit] Commodity PricesDue in large part to massive demand from emerging economies, the prices of all major raw materials used in the manufacture of automobiles has increased considerably over the past several years. These materials include rubber, plastic, copper, steel, and aluminum. As of mid-2008 the prices of these commodities have increased 45%, 20%, 23%, 66%, and 40%, respectively, since the beginning of the year.[26][27][28][29] Strong demand from emerging markets for these commodities continues to increase the price of BMW's raw materials, likely hurting BMW's margins over the long term. [edit] CompetitionBMW is distinct from other major luxury automakers such as DAIMLERCHRYSLER AG (DAI), Lexus (Toyota), or Cadillac (GM) because unlike these companies which make commercial trucks, lower market vehicles, or even buses, BMW only focuses 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.  
[edit] References
|
The Shelf
|
Edit
History
Bookmark
