[atr_hugo]

From Automotive News Europe:


BMW to cut volume and jobs in U.S.


Diana T. Kurylko Automotive News Europe
September 22, 2008 06:01 CET

WOODCLIFF LAKE, N.J. — BMW's new North American chief wants to stop pushing for maximum sales volume in a declining market — even if it means bringing 16 years of U.S. sales increases to a halt.
BMW Group's U.S. operations will not take 44,000 new BMW brand cars and trucks that were to be allocated to the United States this year, said Jim O'Donnell, CEO of BMW (U.S.) Holding Corp. Those vehicles will go to markets where they can be sold more profitably, he said.
The smaller sales target is part of a bigger rethinking of U.S. strategy that O'Donnell will present to his German bosses in January. That plan could include the reintroduction of four-cylinder powertrains, O'Donnell said. Currently, the smallest powerplant in the BMW brand's U.S. lineup is a six-cylinder engine.
In an interview last week, O'Donnell said he will:
-- Cut lease volume at least 10 percentage points.
-- Reduce incentive spending and end the traditional December blowout.
-- Change dealer bonuses to boost customer satisfaction.
-- Cut corporate costs. O'Donnell says he will eliminate 90 North American jobs.
"We want to see how the market is going and will revisit our aspirations in January," said O'Donnell, 58. The Scot, who took the helm at BMW in April, has long been familiar with the United States (see story, Page 38).
"When you have had 16 years of growth, you do not necessarily look too closely at what you are doing and how much you are spending," O'Donnell said. "I need that fresh look at the organization."
Cost cuts
O'Donnell has ordered his department heads to look at cutting costs. They were to have reported back to him by the end of last week. Marketing will be a key area for slashing expenses. O'Donnell said it is wrong "to push in a market that is declining."
O'Donnell expects BMW Group — which includes Rolls-Royce and Mini — to suffer a U.S. sales decline of 10 percent this year.
Overall U.S. sales of BMW, Mini and Rolls-Royce totaled 336,265 units last year. Within that total, the BMW brand accounted for 293,795 units.
"We'll be down maybe a little bit less than the marketplace, about 10 percent down — which I am fine with," O'Donnell said. "I'd rather sell fewer cars than blow them out the door without any profit."
Soft BMW brand sales account for the group's overall downturn. O'Donnell expects Mini sales to approach 50,000 units this year, up from 42,045 in 2007.
The weak dollar and anticipated softness in the U.S. market led O'Donnell to cut his U.S. allocation of vehicles. BMW even slashed the U.S. allocation of the X3 small crossover by several thousand vehicles, even though it's in demand because of high fuel prices.
"We cut back on the X3 primarily because it could be sold somewhere else and it wasn't a huge profit for us at the moment," O'Donnell said.
No December blowout
O'Donnell also is ending the mad push that BMW makes at the end of the year. Traditionally, that's when the automaker offers its highest incentives, most generous lease offers and dealer cash to compete with similar promotions by Lexus and Mercedes-Benz.
He also has sharply reduced BMW's lease deals, which normally account for a big portion of sales. BMW's lease penetration fell from 63 percent in February to 50 percent in August, according to the Power Information Network.
Because of the decline in sales and a renewed emphasis on profits, O'Donnell has decided not to put any incentives on BMW's three newest cars: the compact 1 series, the X6 crossover and the M3 performance sedan. The X6 is so hot worldwide that BMW raised its base price, including shipping, to $56,325, up $3,000.
What has been the blow-back? Absolutely none, says O'Donnell. Dealers tell him they can't keep the X6 in stock.

[jeremyc74]

Sounds like further proof that the entire US auto market is under pretty serious pressure.

I think the move to reduce sales targets instead of trying to meet the current ones with heavy incentives makes good sense. Hopefully we'll pull out of this mess within a year or so.

[GigEm93]

Lower supply + less incentives = higher prices = higher resale value for us.

[RobLS]

Originally Posted by jeremyc74

Sounds like further proof that the entire US auto market is under pretty serious pressure.

I think the move to reduce sales targets instead of trying to meet the current ones with heavy incentives makes good sense. Hopefully we'll pull out of this mess within a year or so.

I've been working under that pressure for several months now. We make sensors for cars and have been going through several layoffs. Currently we are taking this opportunity to expand and enter a new production line for a new sensor and have been signing on manufacturers as much as possible, preparing to begin shipping soon for next year products.

[ptack]

Right now its a half-measure because they are clearly counting on other markets to make up the difference.

"BMW Group's U.S. operations will not take 44,000 new BMW brand cars and trucks that were to be allocated to the United States this year, said Jim O'Donnell, CEO of BMW (U.S.) Holding Corp. Those vehicles will go to markets where they can be sold more profitably, he said."

That's a huge hope/assumption which may prove erroneous if the rest of the world economy slows like the US. Obviously they shoudn't sell cars at a loss, but I can't think of any company that shrank its way to greatness (and their Japanese competitors will probably not be doing likewise). You hope that they stay with their strengths and not formulate some new US strategy based on today's panic.

[Darth One]

one observation does not a trend make, but FWIW i was at the dealer (high volume dealer, always busy, been going to them for 9 years) this weekend to get my TPMS issue taken care of, and everyone was just sitting around. not a customer in sight.

asked my salesman about the M3 and the buggers are not selling AT ALL. 3 series and Minis are a little better, as is the 1-series, but demand for everything is soft.

[Guibo]

Looks like Russia may be a safe bet for diverting some of those vehicles.
http://blogs.automobilemag.com/62866...sia/index.html

Scott has said markets that are now the largest will not be in the future. I'm guessing that means China, Russia, and some Persian Gulf countries are on the way up.

[atr_hugo]

Odd you should mention Russia Guibo - Russia has import constraints for vehicles (protection in the form of tariffs, IIRC). BMW has a 'final assembly' site in the Kaliningrad Oblast, what used to be Koenigsberg in East Prussia. They basically assemble (re-assemble?) knocked down 3ers there at the moment. But I suspect it could be fairly flexible.

[ptack]

Forget Russia in terms of a big market. The oligarchs can only buy so many cars and their economy is even more volitile than Wall Street.
China, on the other hand, has huge potential for BMW. Unlike Russia, China has a rapidly expanding middle class the scale of which could eclipse the US market (if the Chinese government doesn't put the brakes on car ownership).

[Guibo]

Russia has eclipsed Germany as Europe's largest auto market, with sales up 64% while in the same period sales in Europe was only 5%. It's already a big market, and is increasing.

http://www.businessweek.com/globalbi..._top%20stories

See also:
"The three German automakers dominate the global market for luxury cars, yet they are finding the strength of their brands is not enough to guarantee sales in Russia, where incomes are soaring."
http://www.reuters.com/article/GCA-a...BrandChannel=0

"The companies very clearly reflect the boom in Russian consumer spending which has been fuelled by pay rises in excess of 20pc over the last three years. This is testament to Russia’s middle class, which has increased seven-fold since 2000 and now accounts for over 21pc of the Russian population.
...a discerning and well-heeled middle class is building a sustainable consumer boom. The Russian middle class is expected to double in the next 10 years."
http://www.telegraph.co.uk/finance/p...in-Geffen.html


Do note where BMW chose to unveil the newest 7-Series. Not London, not LA or NY, not Beijing, not Paris nor Rome nor Berlin.

[Sephiroth]

This move may be good for BMW, but its bad for prospective customers like me. I hope there are no price increases before the next model year.