22 Votes

Is The Basic Business Model That BMW Based Itself Upon Doomed For Failure?

Agent009 submitted on 11/24/2008 Official Bell & Ross Timestamp: 11:02:35 AM

27 user comments | Category: Misc News | Source: | SOURCE: www.detnews.com

American car manufacturers might be teetering on the cliff edge, but they aren't the only ones with big problems.

Even a hugely successful European company like German luxury carmaker BMW is suddenly faced with a perfect storm threatening to undermine its traditional business case."

BMW used to have what looked like a license to print money. Now the formula looks a bit tarnished.

What if the lawmakers in Europe and the U.S. introduce rules cutting carbon dioxide (CO2) emissions make it impossible to sell expensive, sporty, luxury vehicles?

What if business models based on leasing and high value retention crash and burn?

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Is The Basic Business Model That BMW Based Itself Upon Doomed For Failure?

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User Comments

"What if the 'ultimate driving machine' turns out to be a Smart ForTwo or a Chevy Aveo?"

Oh please no!
— TurboSpyder (View Profile)

Posted on 11/24/2008 11:10:09 AM | reply to this comment | Votes: 9

They were in the past -> BMW Isetta , BMW 600 .
— abcd (View Profile)

Posted on 11/24/2008 3:20:27 PM | | Votes: 0

So why not again .
— abcd (View Profile)

Posted on 11/24/2008 3:21:04 PM | | Votes: 0

Most of BMWs cars sold in Europe aren't big-engined and thirsty like they sell in the US and Mideast. BMW can expect to sell less "powerful" of their models to compensate.
— Willis (View Profile)

Posted on 11/24/2008 4:37:03 PM | | Votes: 1

this is a stupid article
— KZ258 (View Profile)

Posted on 11/24/2008 8:19:16 PM | | Votes: 0

lots of 'what ifs' there.

facts: bmw has suffered below average declines in sales volume and profit margins relative to its competitors.

so, one could make the case that the brand's consistent product attributes are actually what has enabled it to endure better than others.
— enthusiastx11 (View Profile)

Posted on 11/24/2008 12:04:09 PM | reply to this comment | Votes: 6

But its direct competition (Audi and Mercedes) have both fared better IIRC. Mercedes is a global powerhouse vs. BMW's US- and Euro-centric philosophy, while ironically Audi's miniscule sales in the US have been its saving grace. A lack of focus on the US market, which is the market that has been hit hardest, is what has made the Audi brand successful this year. Their sales are up WW, as well as their profits.
— S4cabriofoxone (View Profile)

Posted on 11/26/2008 12:52:46 AM | | Votes: 1

Thanks for an excellent post, 009
— nybimmer (View Profile)

Posted on 11/24/2008 12:06:25 PM | reply to this comment | Votes: 2

BMW's woes are indicative of the rest of the economy. Nobody is immune to the troubling financial virus.

But hopefully, those reading the article will learn a few things about the overall economy:
(1) No matter how expensive your luxury cars, SUVs are; most of those customers finance their vehicles. And if the residual values are steadily dropping, that means leasing costs rise considerably, making monthly payments rise as wll.
(2) Not all luxury car buyers have good credit. And thus so, they have relied on the fact that they can purchase many things with cash...but not everything. They may have disposable income, but after their lease ends, they're gonna want something a little newer. Having to pay more for a lease than purchasing means that they may just buy --- but the terms will be like 48-72 months. They won't be back in the dealership for a while. And their Trade-In will be valued quite low at that time also.
(3) While in Europe, you can get a the top model with a small engine, the same isn't so in other markets (read USA). Most people will opt to buy/lease a smaller car with a small engine instead of getting a big, slower car with a small engine.
(4) The declining health of the economy means that most people's desire to purchase the most expensive vehicle they can has definitely been put on hold. The average, blue-collar worker who is fortunate enough to afford a BMW (or any other luxury vehicle) and may not consider it and instead purchase a sporty version of something less expensive.
— dumpsty (View Profile)

Posted on 11/24/2008 12:07:22 PM | reply to this comment | Votes: 6

One of BMW's challenges is they are losing very loyal customers like me. I have owned over twelve BMW's in the past twenty years, but am done with them unless they change their ways. I've had 740's, m3's, 540's and everything in between.

I don't like GM transmissions in my cars, nor run-flat-tires that are lousy and expensive. I think BMW has lost its way with way too much technology, poor products(the five series is so uninspiring) and cost. Also I can't keep them past warranty as my risk and cost are way too high to do so.

Maybe someday they will wake up and listen, but I doubt it.
— startingover (View Profile)

Posted on 11/24/2008 12:34:59 PM | reply to this comment | Votes: 2

lol this whole post sounds falsified as a person that has had more than BMW and own 2 right now a 04 545i, and 99 Z4 m coupe, this is bogus. BMW cars are more reliable now than they have ever been, the build quality is better as well, and yet you say talk about them as if they are trash. No one makes anyone buy a certain car, and to have 12 and all of sudden now they arent good enough is a lie. GM for the record doesnt make transmissions they have suppliers that do,much like many other automakers which have suppliers that build their transmissions, not to mention if you have owned so many BMW cars, for so long and something so foolish was an issue than you wouldnt have ever bought one. Its rediculous another focus on BMW article, as if they are the only one leasing cars, and another foolish post that has no logic
— bmwdrvr (View Profile)

Posted on 11/24/2008 1:18:33 PM | | Votes: 1

Startingover -
You are so right. The GM transmissions (installed on the x28i's across the board and in the last gen 3-series) and run flat tires are really lousy.

My 328i cab is 18 months old and I've had to replace 2 tires already b/c the run-flats, in fact did get flat - in 1 case stranding me. With no spare, I was screwed.

I won't take the car on a long trip (luckily I have 2 other cars - MB's with real spare tires) and I won't buy another BMW until they ditch the run flats.

The GM autobox on my 328 hunts for gears and since it has 'lifetime fill' transmission fluid - it should fail like clockwork at about 62,000 miles, just after the warranty is up. The plastic water pump should explode right on schedule after that.

Anybody who is interested in issues with older BMWs should subscribe to "Bimmer" magazine www.bimmer-mag.com it is a wealth of honest info about the high points and the low points of BMW's.

I love the driving experience of my 328i cab but there are too many issues that give me pause when considering to buy another.

The subtle point this article fails to mention is that if the vast majority of BMW owners lease their cars and turn them in at the 3 year - 40,000 mile mark, they have not experienced the maintenance/build issues that crop up at about 60,000 miles. BMW might not have such a great relationship with its customers after all.

:-(
— nybimmer (View Profile)

Posted on 11/24/2008 4:40:37 PM | | Votes: 1

Nybimmer and startingover:
If you manned up and got the 6MT instead of the slushbox, this wouldn't be an issue. There is nothing wrong with using your left foot when driving. It's what enthusiasts do.
— HSCenterconsole (View Profile)

Posted on 11/24/2008 4:49:41 PM | | Votes: -1

I really hadn't thought about the GM connection, but now I'm wondering - does my 2008 X5 have a GM transmission? I know that some BMW models do, and GM has had a good reputation for its automotics for a long time. But, besides the various cheap interior parts and the weak sounding "thunk" of the driver's door, the thing that bothers me most about my X5 is that it often seems to be in too high a gear at low speeds, when you head into a corner. I never expected it to be perfect, but I never thought there would be any performance issues with this car.

As for having the right model mix for the times - each line should offer models with less equipment and smaller engines. Problem is, of course, there's less profit in these models.
— Hachee2001 (View Profile)

Posted on 11/24/2008 5:36:38 PM | | Votes: 4

rolls royce has used gm automatics.
— 1995e34 (View Profile)

Posted on 11/24/2008 7:33:05 PM | | Votes: 2

Unkown to many gearheads GM powertrains are world class, thats why BMW and GM have shared a great working partnership for decades and have recently been working on hydrogene powerd cars.
— 1UAW (View Profile)

Posted on 11/24/2008 11:15:10 PM | | Votes: 0

The truth hurts!
— 1UAW (View Profile)

Posted on 11/25/2008 11:36:17 AM | | Votes: 2

BMW has always claimed they are not effected by economic downtimes.
— Badgewhore (View Profile)

Posted on 11/24/2008 12:36:06 PM | reply to this comment | Votes: 2

Turns out it's just another one of their brilliant marketing tactics to give their brand more prestige than it really is. With the market an international mess, the public finally see through the PR BS.
— Badgewhore (View Profile)

Posted on 11/24/2008 12:46:48 PM | | Votes: -1

lol no company has ever said economy doesnt affect them thats a lie, and makes no sense. That was the reasoning by them not producing certain models, let alone reducing exports and BMW has said that....where do you people get this stuff
— bmwdrvr (View Profile)

Posted on 11/24/2008 1:19:41 PM | | Votes: 6

Straight from BMW itself. So if it's a lie, then BMW lied and proves I was right, it was all a marketing pitch to give the brand more prestige. It was a brilliant move and has worked great for a long time, until those stock market speculators robbed the world blind.
— Badgewhore (View Profile)

Posted on 11/25/2008 12:05:31 AM | | Votes: 0

There is one thing I learnt in this business; never underestimate BMW, they have got enough cash to buy Fiat, PSA or launch their own low Co2 emitting brand to bring their average corporate rating down.
Anyhow, with an average premium of €500 to €1,500 Co2 Penalty tax in Europe (who knows about the US?), they simply have enough brand equity in these particular segments to pass it on to customers.
This tax might backfire and actually make BMW Co2 emitting vehicles more desirable by their target customer group.
— LDMAN (View Profile)

Posted on 11/24/2008 2:30:03 PM | reply to this comment | Votes: 1

When the current strongest player in the industry -- Toyota, has its credit rating downgraded, you know things are bad.

Every car manufacturer is feeling the effects of global economic slowdown (or meltdown). Not just BMW. Premium car companies are especially vulnerable. That includes the VW/Audi and the Daimler group, cause in a sense they all follow pretty much the same business script.

The bottom line is fuel-efficiency is now, and for the foreseeable future, the name of the game. These usually mean smaller models, and unfortunately smaller margins as well.

Entry-level models will become a lot more significant. This is something BMW and Benz don’t particulary specialize in...at the moment. But, for their survival they’re gonna have to become really good at it. Brand image be damned!
— weaponX (View Profile)

Posted on 11/26/2008 10:17:34 AM | reply to this comment | Votes: 1

Article is parroting basically what I've been saying over the last year, BMW is so focused on moving volume that they're willing to give their cars away.

As for riding out the storm, MB and VAG/Audi both have much deeper pockets than BMW or the Quandts. BMW has been offering incentives and low financing for over a year now. Are they willling to bleed another 2+ years?

Its better to sell less cars but make money on financing than it is to sell/lease lots of cars for nothing (i.e. GM and Ford).

Wonder if the Reichtholder guy will last through this downturn.

WeaponX,
Civic and Mini are both fuel-efficient but the Mini costs about $8000 more and the Civic is a larger car. I've never seen a Mini even speeding on the freeway, so "fun to drive" doesn't seem to be too important to their buyers.
— huu76 (View Profile)

Posted on 11/28/2008 1:11:48 AM | reply to this comment | Votes: 1

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Is The Basic Business Model That BMW Based Itself Upon Doomed For Failure?

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