BMW To Reduce Production, Raise Prices...

[motordavid]

From Saturday's WSJ, from the Fwiw Dept.
BR,mD

August 2, 2008



BMW to Cut Production,
Raise Prices World-Wide

German Car Maker
Posts 33% Drop
In 2nd-Period Net
By EDWARD TAYLOR
August 2, 2008; Page B5


Luxury-car maker BMW AG issued a hefty profit warning and signaled a return to more conservative sales tactics, reversing a policy of using steep discounts and cheap leases to win U.S. market share.

The German company said it would cut production and raise prices globally, especially in the U.S., as it disclosed that second-quarter net profit fell 33% to €506 million ($789.3 million), down from €751 million in the year-earlier period. Revenue was down less than 1% to €14.6 billion.

Like other premium German brands selling in the U.S., BMW faces an increasingly tough choice between trying to protect profitability and hold on to market share, industry analysts say.

In recent years, BMW has pushed aggressively to sell cars in the U.S., using discounts and easy leasing terms. That trend accelerated over the past year as the U.S. market turned sour, forcing brutal price competition to draw customers into showrooms.
BMW
Auto executives and analysts warn that BMW, Mercedes-Benz and Audi, the luxury brand of Volkswagen AG, all risk losing their most valuable asset -- their exclusivity -- by copying the hard-sell high-volume tactics U.S. car makers have used for decades.

BMW now appears to be struggling to return to its previous sales strategy known as "pull" -- making customers line up to wait for cars and pay full price, attracted by the belief they are getting an exclusive product.

"Any premium auto maker that strives to push volume for its own sake, runs the risk of losing exclusivity," says Vic Doolan, president of Volvo Cars North America until March 2005, and president of BMW of North America until July 1999.

BMW said Friday it wants to "retain its position as the world's leading premium manufacturer." In 2005 BMW eclipsed Daimler AG's Mercedes-Benz to become the world's biggest-selling premium auto maker by sales, in part as a result of its aggressive sales tactics. But the Munich-based company said "volume growth will not be pursued at the expense of profitability. In the light of the ongoing weakness of the U.S. dollar and market, sales volumes will be reduced in the U.S. on a targeted basis as part of a new strategy for this region."

BMW has been among the most aggressive companies in its use of discounts to sell cars in the U.S., offering an average $4,680 per car in June, up 62% from June 2007. Rival Mercedes-Benz offered $4,692 of discounts, roughly 35% more than in June 2007. Audi, which offered $4,085 per car in June, ramped up its incentives by 50%, figures supplied by Autodata Corp. show.

The incentives are higher than those granted by Ford Motor Co. and General Motors Corp., but they're also higher than those for Lexus, which offered incentives of $1,557 per car in June, and Acura, which offered discounts of $1,841.

Cheap leasing deals have also hurt BMW's profits. In the second quarter, BMW booked a charge of €459 million related to its leasing business, following a €236 million charge in the first quarter.

A sharp downturn in auto markets in recent weeks means BMW won't meet its previous profit target for 2008, the company said, warning that 2009 will also be a tough year. BMW said it expects the operating margin in its automotive division to reach "approximately 4% or higher" in 2008, down from the 6.4% in 2007.

BMW's bid to boost sales volumes appears to have been eroding the company's profitability for some time. While its auto sales rose to 1.5 million cars in 2007 from 1.05 million cars in 2002, operating margins for that segment shrank to 6.4% at the end of 2007 from 9.2% in 2002.

Currency factors, rising investments in fuel-efficient technology, the rising price of raw materials, as well as slumping demand in the U.S., have contributed toward eroding profits, the company says.
Rather than seeking to top the 336,000 cars BMW sold in the U.S. in 2007, sales volume figures are "likely to be lower than a year ago," the company said. On a group level, BMW has decided to "reduce production volumes and increase selling prices."

Audi recently reduced its sales target in the U.S. to 95,000 units from the 100,000 in sales it previously had targeted for this year, a spokesman for the company said Friday. Daimler, the Stuttgart, Germany-based parent company of Mercedes-Benz, late last month gave a profit warning and also said it would give increased emphasis to growing volumes profitably.

http://online.wsj.com/article/SB1217..._and_investing

[blondboinsd]

I love how Benz discounts it's cars, hello E350 with an 11k discount!

I was just at the BMW dealer looking at 528i to replace the '03 325i with 85k on the clock and they would discount MAYBE 2500-3500, not enough

They seem to live in the same crazy world as the condo project next to mine that THINKS their worth 500k for a 2bedroom/2 bath, um crazy much?

I said call me when you will give me 8k off, off to the Benz dealership....

Sorry but the days are gone when an 800.00 car payment sells in bulk, we are in a recession, everybody is cutting the fat!

[noncom23]

Keep 'em. Then sort out the profit!

[AzNMpower32]

That's good news! Exactly what I've been advocating for a couple years now.

[Thunder22]

This is SOP for BMW... they're protecting the brand.

[B-Line]

While it seems like a good idea, it also means that WE will be paying more for the same car. And in a time when we are also paying more for fuel, etc.

This plan seems to make sense in a booming economy when everyone wants a new car and are even willing to wait for one.

But today, BMW is going to push away customers who have been loyal to BMW specifically because they have been very affordable to lease.

So while I agree with the strategy, I don't agree with NOW being the time to implement it.

Besides, have you seen all the new BMW dealerships all over the country? Those are some big, fancy shops. Not a lot of point to all the expansion they have done if they're just going to decrease the business they are doing from there.