BMW SWOT Analysis

In this essay I will present a SWOT analysis of one of the largest carmakers, BMW, and identify the capabilities that they have, which will enable them to sustain a competitive advantage in automobile industry. First there is introduction of general view of the automobile industry to explain the complexity of it, and after that a BMW analysis.

Automobile IndustryIn the period from 1990 to 2001 automobile industry has undergone major changes. Consolidation was moving forward very rapidly and almost 69% of the automobile market was owned by six international giant companies.European market specifically faced a furious competition, the high technological advancement and the level of quality achieved by most manufacturers radically decreased the opportunity for product differentiation. Also, huge increase in productivity happened due to consolidation. These factors made price competition the prime strategy for. Customers, environmental constraints and petrol prices also helped in creating this insensitive environment and obliged many companies, mainly midsized players like BMW, to rethink their business strategy in order to survive.

BMW overviewBayerische Motoren Werke Group (BMW) is one of the world’s leading luxury carmakers. Founded and based in the Germany, BMW employs 820,000 workers in plants in Germany U.S.A and South Africa. In 1959 Herbert Quandt bought BMW, when the company was in financial difficulties, now they own 46% of the BMW shares.

The powerful reliable performance and their luxurious design made BMW “The ultimate driving machine”. Until 1990 BMW strategy was to focus on the high performance of its products. Later the high competition and the rapid development of its competitors forced BMW to think of expanding its range of products, to join the ranks of the auto industry super power. In 1994, the German carmaker BMW bought Rover from British Aerospace. The strategic thinking was that the acquisition would allow obtaining significant economies of scale. However, things did not go according to plans after and BMW sold Rover in 2000.

Internal and External Environment, BMW perspectiveLong term survival is the result of an organization ability to adapt to the forces and influences exerted on it by the external environment. In responding to these forces companies formulate strategies to cope with competition, maintain or increase its market share and retain their profitability. Two major strategic decisions were undertaken by BMW to deal with the external environment, the first is the acquisition of Rover, the second came out after the failure of the Rover venture.

SWOT ANALYSISSWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective.

STRENGTHSReputationBMW has a reputation for luxury and refined quality. The BMW brand relates well to the domestic owner reinforced by BMW's reputation for quality, reliability and their dealer’s attention to service. Respected as the ‘ultimate driving machines’ and leading the field in a whole host of classes, BMW are constantly innovating in their quest to stay ahead of their competitors.

Engineering HistoryBMW is not only a carmaker; they are one of the world leaders in motorcycle production, aircraft engines, in addition to marine engines. BMW has a long history of providing the best engineering possible in the market.

FacilitiesBMW’s factories are considered the most flexible and most productive in Germany; its suppliers are the industries best; and the workforce among the industry’s most talented.

Strong Financial PositionDespite a 53 percent increase in research and development and a 75 percent increase in capital expenditures over the past two years, BMW’s net profit for 2003 rose 8.3 percent to £1.26 billion, while revenues increased by 9.9 percent, to £26.4 billion. Operating margins, at 8 percent in 2002 and 8.7 percent in 2001 were among the highest in the industry.

Shared componentsBMW is able to keep overall costs down by using shared components across its similar-sized cars. For example, the 5 Series shares components with the X5 and the 6 Series, and the 3 Series shares with the X3, and the 1 Series.

Continuous ImprovementBMW identified the need for improved quality and customer care. BMW now offers a four-year warranty, including maintenance and service, in the price of the car, cutting out complaints that occasional technological glitches made the brand extremely expensive to maintain.

WEAKNESSESBMW roll out a new or updated model nearly every three months through 2005 may shift emphasis on getting a new model to market rather than focusing on issues that may develop with existing models, issues such as software, and mechanical problems.

Manufacturing costsCompared with other volume producers, BMW’s manufacturing costs are much higher, its product development process more costly, and its purchasing costs are higher because its suppliers are the industry’s best; and the workforce among the industry’s most talented which is stated as one of BMW’s strengths, but can be a weakness as having the ‘best’ and ‘most talented’ does not come cheap.

Relying on 1 SeriesBMW is relying too heavily on one model, the 1 Series to maintain its high margin. They are also realizing profits due to the strong sales of the loaded models of the Mini, but need to expand.

Shared componentsAlthough this can also be identified as strength it can also be a true weakness. If cars are using shared components or if they are too similar, it could lead to loss of sales of higher priced models, in BMW’s case the 3 Series.

THREATS:The following threats are realized in the BMW Automobile case:Merger threat: Merger activities have generated a £138.7bn in 857 deals between 1998 & 2000. Ex. the GM acquisition of 20% of Fiat automobile division, Daimler Chrysler acquired Mitsubishi of Japan. These actions set examples of how major manufacturers are trying to survive in the mass market through mergers and acquisitions. Larger automobile companies can survive the long term because they are able to produce the industry threshold of 2 million units a year. Smaller automakers like BMW may not be able to last through the long haul turning them into a takeover target.

Competitors: One of the biggest threats that BMW realized was the increasing number of competitors that are now directly competing with it in its market segments namely ‘executive’ and ‘luxury’. Volkswagen produced models which competed, with BMW in the executive saloon segment. At the luxury end, Daimler-Chrysler’s Mercedes brand competed with BMW 7-series. Toyota directly targeted BMW through introducing their luxurious Lexus model. With its low cost, high performance and quality Toyota was able to compete with BMW at most of its market segments.

OPPORTUNITIES:

An opportunity is a favorable situation for the company. Through analysis of the external environment several opportunities were detected by BMW that led to their decision of acquisition of Rover, and also shaped the strategy they decided to follow after that acquisition.Economy of scale: Rover is a midsized company almost similar to BMW in terms of unit volume, so through the acquisition of Rover BMW will be able to increase its economy of scale and protect its independence.Market segment: Through the acquisition of Rover BMW will be able to increase its market share and cover a wider market segments. Rover was competing with BMW in its segments plus it produces cars in segments that BMW was planning to enter. Thus the opportunity in acquiring Rover from BMW perspective was quite beneficial.Expansion: BMW geographical expansion and the profits it is gaining in markets other than the European market such as USA, where BMW sales outsold that of its main competitors, will create opportunities for the company to find new ways of expanding using their own products.

ConclusionBMW has earned a reputation for high quality engineering and product development. BMW has become the envy of most of the auto making industry with impressive sales and earnings improvements in the face of generally tough world car industry conditions.The Rover venture loss has benefited BMW. It highlighted the true competitive advantage BMW have that will enable them to compete not only in luxury segment but in any market segment they might choose to enter. In the near-term the future remains bright for BMW with sales and profits continuing to outperform competitors. The longer-term future, however, contains some significant challenges.