BMW falls victim to U.S. success
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BMW falls victim to U.S. success
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.
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.
Lexus Fanatic
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Cost-cutting can actually work against a company in the long run. Cheapen and decontent the vehicles too much, without dropping prices, and you will alienate your customers. That, I'm afraid, is what is starting to happen at Subaru, which, up to now, has done some of the best cars in the industry for the money....and which has had one of the highest repeat-buyer rates.
You don't make ANY money if your cars don't sell, economization or not.
You don't make ANY money if your cars don't sell, economization or not.
Last edited by mmarshall; Mar 25, 2008 at 07:43 PM.
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"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."
um, the car is almost 7 years old - incentives are to be expected at this point. Its not like it had these incentives the whole time.....
Yes, take a gander at some of the new Toyota interiors as well - Sequoia and Land Cruiser come to mind.....
um, the car is almost 7 years old - incentives are to be expected at this point. Its not like it had these incentives the whole time.....
Cost-cutting can actually work against a company in the long run. Cheapen and decontent the vehicles too much, without dropping prices, and you will alienate your customers. That, I'm afraid, is what is starting to happen at Subaru, which, up to now, has done some of the best cars in the industry for the money....and which has had one of the highest repeat-buyer rates.
You don't make ANY money if your cars don't sell, economization or not.
You don't make ANY money if your cars don't sell, economization or not.
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"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."
um, the car is almost 7 years old - incentives are to be expected at this point. Its not like it had these incentives the whole time.....
Yes, take a gander at some of the new Toyota interiors as well - Sequoia and Land Cruiser come to mind.....
um, the car is almost 7 years old - incentives are to be expected at this point. Its not like it had these incentives the whole time.....
Yes, take a gander at some of the new Toyota interiors as well - Sequoia and Land Cruiser come to mind.....
We are not talking about Toyota interiors here, but BMW ones (even if I agree with you).
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Lexus Fanatic
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I wonder how Benz profits compare with Lexus profits.
Not in the prestige luxury segment. Incentives at this price point and in such a prestigious segment are definitely not expected. I don't remember the previous gen LS or S Class ever having such incentives, despite being dated.
Not in the prestige luxury segment. Incentives at this price point and in such a prestigious segment are definitely not expected. I don't remember the previous gen LS or S Class ever having such incentives, despite being dated.
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I don't even understand why BMW isnt making money. Their cars are already expensive, moreso than lets say Lexus, Infiniti or Acura, but their build quality and materials are defenately not up to Lexus levels. They must be doing something really wrong if they arent making money.
Lexus Champion
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I often wonder if you shop these cars or if you just go off of what you see on the websites. Lexus was cutting incredible deals on the LS430 at the end of its life cycle as was MB with the previous gen S Class.
Lexus Champion
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From: IL
I don't even understand why BMW isnt making money. Their cars are already expensive, moreso than lets say Lexus, Infiniti or Acura, but their build quality and materials are defenately not up to Lexus levels. They must be doing something really wrong if they arent making money.
Lexus Test Driver
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From: GA
It is a shame that you can be penalized for selling too many cars. That is crazy that in this current market, you have to balance the amount of cars you sell state side. I think quality is excellent, but I also think that the prices are too high and if they continue to go up like this, then you end with less consumers and maybe they will decrease sales, therfore, increase profits...I think? 
Lexus Test Driver
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From: CA
I don't even understand why BMW isnt making money. Their cars are already expensive, moreso than lets say Lexus, Infiniti or Acura, but their build quality and materials are defenately not up to Lexus levels. They must be doing something really wrong if they arent making money.
On the performance side BMW I think still maintains its edge but that cutting edge engineering costs money.
Lexus Fanatic
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From: Virginia/D.C. suburbs
I think the competitors have mostly caught up. BMW differentiates its as the ultimate driving machine but a good portion of the customer base buys it based off perceived quality and as a status symbol. These status seeking customers are increasingly looking at MB, Audi and Lexus...and not everyone loves the Bangle designs for BMW
On the performance side BMW I think still maintains its edge but that cutting edge engineering costs money.
On the performance side BMW I think still maintains its edge but that cutting edge engineering costs money.
IMO, with the possible exception of Porsche, BMW sets the industry standard for being a "Driving Machine". I know of no other American-market sedans (and I drive a lot of new cars) that have such a telepathic steering feel and such a well-done combination in the suspension of ride and handling.
Lexus Test Driver
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From: CA
BMW, despite its weaknesses in some areas, DEFINITELY puts money into its steering systems and chassis engineering.
IMO, with the possible exception of Porsche, BMW sets the industry standard for being a "Driving Machine". I know of no other American-market sedans (and I drive a lot of new cars) that have such a telepathic steering feel and such a well-done combination in the suspension of ride and handling.
IMO, with the possible exception of Porsche, BMW sets the industry standard for being a "Driving Machine". I know of no other American-market sedans (and I drive a lot of new cars) that have such a telepathic steering feel and such a well-done combination in the suspension of ride and handling.