Not true. Or else BMW would be jacking up prices every 3 months.

Dunno...slept through that part of Money&Banking back in the mid 60s,
though currencies can and are, often "locked" via hedging another
currency or basket of currencies, and often "both ways"...

And, I would bet dinner that BMW hedges currencies. It is almost a must
for international companies like BMW. They are wrestling with Euros vs
USD, (for the most part), along with several other country sales, and
probably use hedging via Current Rate Method, as opposed to temporal method, in accounting.

Even at the lil' company I spent the last 11 years with, we hedged our fannies off, as we had mfg'ng sites
in several countries, with "local" sales, and "companies" set up, accounting-wise, in those countries, around the
world. BMW, et al, are no different; just a lot bigger than we were.

There is risk in hedging currencies, accounting-wise, balance sheet
noise, credit rating and ratios, and of course "translation risk" in
bringing those diverse numbers, from several currency "sources",
together in to a balance sheet that passes GAAP or the euro version
of GAAP. Off the soapbox...but, I bet currency fluctuation keeps
the CFO and his minions, awake some nights, even with hedging.

There will always be some risk when you hedge your position, especially a position as large as BMW's portfolio. As far as accounting practices go, it wouldn't make a significant difference between GAAP and IFRS. Although it would be more efficient if it was one or the other, the cost is so miniscule when looking at BMW's numbers.

As far as locking in the interest rate, I think it's something I will look into.

I certainly think that's a good argument, but when looking at the top production cars of various companies, it seems the 7-series is not so much sport as it is luxury. I'm not sure if you're suggesting that this is what BMW can set itself apart from the pack in....

but none the less, am I correct about the top production car "thing"? Because the only thing I can think of is the M5 which isn't comparable to the other contenders. However, I'm sure someone will pose the argument that BMW is smaller in size companies like Daimler, VW, and Ford. Having said that, is that a sound argument to make though?

Bayerische Motoren Werke (BMW) is one of the largest car manufacturers in the world and has achieved brand recognition in the automobile industry. The mission statement up to the year 2020 is “The BMW Group is the world’s leading provider of premium products and premium services for individual mobility”[1]. This goal is carried out through the company’s many successful entities including BMW, Mini and Rolls-Royce. BMW was established in 1917 as an aircraft-engine manufacturer. In 1929, BMW produced their first car and subsequently, following Germany’s involvement in World War II, they began producing airplanes and other military machinery[2]. Following an economic downturn in Europe, BMW was put up for sale in 1959 but at the last minute, the Quandt Family acquired 46% of the company to prevent liquidation. In 1994, BMW bought the British Rover Group, which they later sold to Phoenix Consortium and Ford. In 2008, BMW began producing the 1-Series models and in 2010, they created the fastest SUV in the market: the M(motorsport) for the X-Series (X5 and X6)[3].
In 2008 Fiscal Year, BMW recorded revenues of €53,197 million, of which 71.2% were automobile sales. Financial services such as leasing, financing, and etc. accounted for 26.2% of the revenues. To put these numbers in perspective; 2008 total sales had a decrease of 5% from 2007 and revenue recorded for the automobile division were €37,877 million, a decrease of 10.7%[4].
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BMW attributed this decline to the increased competition in emerging markets such as China as well as volatile market conditions.
BMW is a public traded company on the Xetra, based out of the Frankfurt Stock Exchange in Germany. It is a large capped stock with a closing price (11/19/2009) of €32.76 with an EPS of €0.49. The stock is relatively stable with the only major volatility being the 3rd Quarter of 2008 because of the world-wide recession.
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BMW’s largest geographical market is the United States which accounted for 21.3% of total revenue in 2008. This was followed by Germany and Asia with 20.2% and 15.9%, respectively. The United Kingdom accounted for 9.2% and the rest of Europe accounted for 29.7%. BMW’s profit plunged 74% in the third-quarter to €76 million from €296 million a year earlier. Many analyst suspect the reasoning behind this drop is because Government incentives to car buyers attracted consumers to lower priced cars such as the Volkswagen Golf (€17,000)[5] as opposed to the BMW 3-Series (€22,000)[6]

BMW has an extensive global presence with over 100,000 employees operating at 24 sites in 13 countries on four continents. In addition, BMW announced their plans to build a new factory in China to meet rising demands in the Asian market, which is expected to be a 28% growth over last year. At this rate, sales in Asia are estimated to surpass U.S. sales. This plant is being created through a joint-venture (required by Chinese Law) with Brilliance China Automotive Holdings Ltd. The 5 billion yuan ($732 million) plant is expected to be manufacture 100,000 vehicles by 2012, with enough capacity to produce 300,000 soon after[7].

Another one of BMW’s strengths is its high employee productivity. In 2008, the company achieved revenues of €53,197 million ($78,270.9 million) with 100,041 employees. The company’s revenue was $782,388 per employee. This is a remarkable feat because it shows BMW’s employees are highly productive and efficient. The marginal benefit of each employee exceeds that of the marginal cost. To put this into perspective the closest competitors like Ford Motor and Daimler had a revenue/employee of $686,746 and $516,301 respectively[8].

Although BMW has a significant global presence, it’s weakness is that they have not achieved economies of scale like Daimler or Volkswagen. In 2008, Daimler and Volkswagen had revenues of €95,873 million and €113,808 million, respectively, compared to BMW’s €53,197. Additionally, Daimler and Volkswagen had an employee count of over 273,000 and 369,000, respectively, when compared to BMW’s meager 100,000. These large powerhouses are able to achieve economies of scale and also produce many different models targeting a variety of consumers. Because BMW lacks the scale of its competitors, they instead concentrate on niche markets and try to differentiate themselves away from the crowd.

BMW’s major opportunity to increase profits and gain market share is in the Chinese market; which is expected to increase from 7.4 million units in 2008 to 10.03 million units in 2013. Because Daimler holds significant market share in Europe and there is a rising demand in China, it is imperative that BMW gets the first-mover advantage in China to compensate the decline in market share in other regions. With the BMW plant in China planned for 2012, BMW will also need to implement a support system for the hundreds of thousands of cars they will be producing in China.

A major risk for not only BMW, but all companies that operate globally is currency risk. Because BMW operates in many markets, their portfolio includes many currencies. In the event that the value of one currency depreciates, BMW’s net profit would be substantially lower. In addition to the normal risk involved in the foreign exchange market, the world economy was very volatile in 2008 and is only stabilizing to a certain degree in 2009. This volatility saw the value of the Euro appreciate compared to the dollar from 1:1.2 to 1:1.65. The only defense against this type of instability in the market is to have a hedging strategy to limit the risk of the portfolio. Such hedging positions would include purchasing gold and/or other commodities.

One of BMW’s competitors is German automobile producer Daimler AG. Daimler has a wide range of products including passenger cars, trucks, vans, buses, highway businesses, real estate, and military machinery[9]. Because Daimler is so diverse and large, for all intents and purposes, I will only use the Mercedes-Benz division for comparison. Mercedes-Benz’s promotional strategy concentrates on safety, innovation, and brand recognition while BMW focuses on driving pleasure, performance, and price. Since 1959, when Daimler failed to take over BMW, the two companies have been in fierce competition. Instead of targeting the gaps in the other’s product portfolio, they have been competing head-on with each other. This is reflected in the 3-Series vs. C-class, 5-Series vs. E-class, 7-Series vs. S-class, X-Series vs. ML, and M division vs. AMG.

In 2009, Mercedes launched a new ad campaign that focused on the safety and technology of its new E-Class Series. The estimated $75 million campaign[10] centers on the reliability of Mercedes and safety technology features that can be life-saving if an accident occurs. Even in tough economic times, when competitors focus on low prices, Mercedes angles it’s marketing on safety innovations. As Steven Cannon, VP of marketing for the U.S. division of Mercedes said “You have to give people the justification that says, ‘Yes, a Mercedes-Benz is relevant to me – it can save my life.’”[11] Some of these new technologies include blind spot detection, lane-keeping assist, night view, and attention assist.

BMW takes a different approach in its marketing strategy, instead concentrating on performance and price. Because of the recent recession, BMW began offering lease deals for as low as $349/month for a new 2009 3-Series. With BMW’s catch phrase: “The ultimate driving machine”, the company certainly lives up to it with the performance capability of its products. Even customers who purchase entry level models such as the 1-Series and 3-Series can attest to the driving pleasure attained from a BMW. Additionally, BMW recently began an advertisement campaign for Certified Pre-owned (CPO) Cars which costs significantly less than new cars but still have a BMW warranty. In a recent commercial in the U.S., a father-in-law thinks that his new son’s BMW is new, even after the son-in-law explains to him that it is a CPO[12] resulting in the son-in-law sleeping in the basement.

BMW’s marketing strategy targets a lower-age demographic when compared to Mercedes Benz. Generally, younger audiences have performance and price as a priority over safety and innovation, and the vice-versa holds true for older consumers. Because of this lower age group (<39 years old), BMW markets their products in creative ways such as “The Hire” film series in 2002[13] and the billboard advertising wars with Audi in 2006 and 2009. The Hire was a series of short movies (about 5-8 minutes in length) that included many famous actors/actresses and directors like Clive Owen, Madonna, and Guy Ritchie. These short films included action-based plots with the use of various BMW models such as the M5, Z4, and X5. In one of the films, “Hostage”, Clive Owen must locate a kidnapped victim trapped in a car on the water’s edge. Once the kidnapper divulges the information to Clive Owen, Owen drives in his Z4 to rescue the victim before she drowns. Not only does he have to race against time, but police are also chasing him because of his speeding. The one commonality between all the films was that it highlighted the performance capability of each BMW used and wanted to convey that message to the audience.

In 2006, BMW initiated a billboard advertisement war with Audi by printing an ad with a picture of a BMW 5-Series that read “Congratulations to Audi for winning South African Car of the Year 2006; From the Winner of World Car of the Year 2006.” Needless to say, Audi responded by printing an ad with a picture of an Audi S4 that read “Congratulations to BMW for Winning World Car of the Year 2006; From the Winner of Six Consecutive Le Mans 24 Hour Races 2000-2006.” In April 2009, Audi put up a billboard on Santa Monica Blvd, CA that showed a picture of the Audi A4 with a description that read “Your move, BMW. The entirely new Audi A4.” Within less than a week, BMW of Santa Monica (a local dealership) picked up the challenge and hired Juggernaut Advertising to put up a billboard adjacent to Audi that showed a picture of a BMW M3 with the description “Checkmate”[14] These non-standard approaches to advertisement paid off very well because they were relatively inexpensive to put up, but generated a lot of web traffic to gain publicity.

Although BMW and Mercedes-Benz compete with each other head on, the comparison between the models they produce is very difficult to compare outside of pricing and performance numbers. This is because the reliability of either model is hard to judge because both companies manufacture very sturdy automobiles and the discrepancy between drivers can skewer the numbers. For example, while many argue that BMW cars are more prone to repairs, the counter-argument is that BMW drivers purchase a BMW for performance as a priority. Performance-centered drivers tend to push their cars to the limit, which in turn will result in more repairs than a Mercedes-Benz driver who focuses on safety and has a feather foot. Additionally, various performance numbers such as horsepower, torque, 0-60 and quarter-mile times do not take into account ride comfort, handling, and stability. What is comparable however, is the pricing of the models, which are very similar.

Entry-Level (3-Series and C-Class)
Mid-Level (5-Series and E-Class
Luxury Level (7-Series and S-Class)
SUV (X5 and ML)
Performance(M-Model and AMG)

Although BMW and Daimler normally compete head to head, there are a few exceptions to this. The reasoning behind this is only known to the upper echelon of management in each company. Many speculations include First-Mover Advantage to gain complete market share or the venture is simply not profitable. These exceptions include the Mercedes-Benz R-Class which is a third row seating car that is targeted at family-conscious consumers. BMW recently produced the X6, which is a “SUV-Crossover” that targets sedan drivers who like the elevated height of an SUV. Lastly, BMW recently submitted their X-models to a variant of its M-performance division, creating the X5 M and X6 M. These SUVs are powered by a twin-turbo engine that can achieve 0-60mph in about 4 seconds. These high performance SUVs are targeted at active consumers and/or family-conscious consumers who still have a relatively high degree of vigor.
Both BMW and Mercedes-Benz operate their sales out of dealerships and showrooms. Many of these dealerships pay royalties and commissions to their respective companies in return for allowing them to sell their vehicles. To some degree, this can be seen as a franchising operation, but each dealership has a sense of autonomy, to promote and sell as it sees fit. Because BMW and Mercedes are such large companies that operate throughout the world, they have production centers in every major market including the United States, Europe, and Asia.
My assessment of BMW’s marketing strategy is that they are willing to try non-standard approaches to target niche markets. This can be seen through their billboard wars displaying high performance cars like the M3, whose target markets includes male adults who are less than 40 years old. Because BMW is smaller in size when compared to its competitors, they focus on niche markets to maximize profits. However, there are two things that I think could improve BMW’s revenue: A top level performance car and more entertainment-based advertisement.
Although BMW prides itself on the performance of all its vehicles, it does not have a product which can be compared to the crème de la crème of its competitors such as Audi and Mercedes. The top sport-performance car that BMW produces is the BMW M6, which has a starting price of $101,700. Although this car is quite the beast when you look at its 500 horsepower with a climb to 60mph at 4.6 seconds and a quarter-mile at 12.4 seconds, it becomes a teddy bear when you compare it to other company’s top sport-performance car. Volkswagen’s Audi R8 has a starting price $162,500, with 525 horsepower and a 0-60 speed of 3.7 seconds with a quarter-mile time of 11.8 seconds. Perhaps the most astounding is Mercedes-Benz’s SLR McLaren. At a starting price of $500,000, this machine lets out 617 horsepower with a 0-60 and quarter-mile time at 3.8 seconds and 11.3 seconds. [16] Even though these are strictly numbers, they due indicate that BMW is behind the curve when compared to its competitor. If BMW prides itself on having the ultimate driving machines, it should produce a car that can run with the best. By not having a production car that can compete with the top echelon of its competitor’s products, it can put BMW in a very venerable situation that can put its brand image in jeopardy. For example, following BMW’s rebuttal to Audi’s billboard war in Santa Monica, Audi placed a third billboard that displayed the Audi R8 with a description that read “Time to check your luxury badge, it may have expired.” Because the car of each succeeding billboard surpassed the preceding billboard in terms of performance (Audi A4 < BMW M3 < Audi R8), BMW has no answer to Audi’s attack. This can potentially cause BMW to lose market share, hence why a new sport-performance car must be produced.
Another way to improve BMW’s revenue is to make a change to its promotional strategy. Instead of focusing on television commercials and internet advertisement (both of which consumers find more irritating and annoying than helpful), BMW should focus on a more entertainment-based promotion. This can be done in a 2-prone approach, the first of which is endorsement deals through movies and television shows. In the James Bond films such as Golden Eye, Tomorrow Never Dies, and The World is Not Enough, BMW had endorsement deals with the movie companies[17]. The vehicles involved, such as the BMW Z3, Z4, and 7-Series epitomized what BMW and Bond was: suave, sexy, and can perform like you’ll never expect. However, shortly after the Bond films of the 90s, BMW no longer worked in conjunction with films, but instead competitors like Audi and General Motors did, in such films like The Transporter and Transformers, respectively. Since BMW’s target market is a young active audience, what better way can they convey that message than to show what the car can do in an action packed film involving many famous actors, actresses, and directors. This brings me to the second of the two-prong attack: To start a new viral campaign, much like “The Hire” in 2002. Since the inception of The Hire in 2002, BMW has updated all of its models and came out with new product lines. By using YouTube to spearhead the new campaign, this will be an inexpensive marketing ploy to gain publicity. Once again, since BMW’s target audience is relatively young, many of them are familiar with YouTube. By having a video of pure BMW performance capabilities, viewers will then forward the video to someone else, and so on.



[1] Bayerische Motoren Werke AG Annual Report 2008

[2] Edmonson, Gail. "BMW's Quandt Family Faces Its Nazi Past." BusinessWeek. The Mc-GrawHill Companies Inc., 10 Oct. 2007. Web. 9 Nov. 2009. <http://www.businessweek.com/globalbiz/content/oct2007/gb20071010_765240.htm>.

[3] BMW X5 M and X6 M Press Release, Mar. 2009

[4] Bayerische Motoren Werke AG, ©Datamonitor Revenue Analysis 2008

[5] Reiter, Chris. BMW Profit Drops 74% as Recession Saps Luxury Sales (Update2) . Bloomberg, 3 Nov. 2009. Web. 12 Nov. 2009. <http://www.bloomberg.com/apps/news?pid=20601100&sid=aXyGBl.eU.PA>.

[6] BMW UK

[7] "BMW to Build New China Plant on Luxury-Car Demand." Bloomberg News 12 Nov. 2009: Web. 15 Nov. 2009. <http://www.bloomberg.com/apps/news?pid=20601100&sid=aqgG2iYaOkaA>.

[8] Bayerische Motoren Werke AG, ©Datamonitor SWOT Analysis 2008

[9] Daimler AG, ©Datamonitor Revenue Analysis 2008

[10] Clifford, Stephanie. "Mercedes Campaign Focuses on Image, Not Recession." The New York Times. The New York Times, 19 June 2009. Web. 11 Nov. 2009. <http://www.nytimes.com/2009/06/19/business/media/19adco.html>.

[11] Diehlman, Steve. " Mercedes-Benz Changes its Marketing Strategy for 2010." Automotive News. Automobile Magazine, 12 Oct. 2009. Web. 12 Nov. 2009. <http://rumors.automobilemag.com/6595383/news/mercedes-benz-changes-its-marketing-strategy-for-2010/index.html>.

[12] BMW Launches New Advertising Campaign For Its Certified Pre-Owned Program Press Release, Sep. 2007

[13] The Hire, The Internet Movie Database

[14] Billboards War: BMW vs. Audi

[15] New 2009, 2010 BMW Car Models - Yahoo! Autos

[16] Swan, Tony. "2008 Mercedes-Benz SLR McLaren Roadster - First Drive Review." Car and Driver. Car and Driver, Oct. 2007. Web. 12 Nov. 2009. <http://www.caranddriver.com/reviews/car/07q4/2008_mercedes-benz_slr_mclaren_roadster-first_drive_review>.

[17] Car Enthusiast NEWS - by CAINT.COM

Hm... I also realized I'm lacking a conclusion.

Well written, everything looks good from here :thumbup:

Thanks for everyone's help. I received my paper back today. I scored the highest in the class - 95% :)

Congrats :thumbup: