bmwcompanyanalysis

8/3/2019 BMWCompanyAnalysis

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BMW

Haris Fazlani

Strategic Management

Company Analysis



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BMW is a German automobile, motorcycle and engine manufacturing company

founded in 1916. It also owns Mini and Rolls Royce. It is one of the premier brands from

Germany and is a leader in driving dynamics and implementing a sports car like feel into

its everyday family sedans. It is an extremely valuable company and is one of the most

consistent market leaders in product quality and innovation. They’re currently

researching and developing alternate fuels and more efficient transport as part of the

BMW EfficientDynamics program.

Financial Analysis

Despite the harsh economic times, the BMW Group is in great shape

financially. According to the figures displayed on Figure 1, BMW and its subsidiaries

have experienced a net increase in sales volume, production, and revenues from

2009 to 2010 (BMW Group 2010). The percent changes are impressive considering

the slight downturn in sales and production in late 2007 and again in 2009. The

drops seem large, but to a global giant like BMW, they’re not overly significant. The

last few years have been anything but smooth for all global companies, but luxury

marques like BMW have been least affected by it. The worst of the recession has

passed and BMW looks like its making steady gains again, especially with the

introduction of cheaper and more efficient and accessible models.

The ten-year comparison shown in Figure 2 shows a definite steady increase

from 2001 to 2010, aside from the slight dips in production, deliveries and revenues

in 2007 and 2009 (BMW Group 2010). Although their profit margin percentage is

lower now than it was in 2001, Net profit is as high as it’s been throughout the ten-



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year span. The most likely reason for a drop in profit margin is the added cost of

personnel. BMW is expanding steadily and adding more factories and workers.

Along with high-level management, shareholders were also extremely happy

this past year with an all-time high in dividends paid and dividend per share of

common and preferred stock.

Figure 3 and 4 compare the financial ratios of BMW and Audi respectively.

Audi is BMW’s closest competitor in terms of performance and sales (Bloomberg

2010). In most cases, including Total Revenue (15.55% to 19.84%), Return on

Capital (6.03% to 20.63%), and Quick Ratio (0.8x to 1.7x), Audi is ahead of BMW.

This difference is mostly due to Audi’s recent drastic changes in design language and

driving dynamics. Through advanced four-wheel drive systems and turbocharging,

Audi is able to achieve driving characteristics that are almost on par with BMW’s,

but the leading factor in its spike in popularity is the newly designed models with

their slick lines and LED lighting. In some critical categories, however, BMW is still

ahead of Audi. These include: Gross Profit (59.04% to 39.08%), Cash from

Operations (52.29% to 35.21%) and Inventory (32.72% to 24.74%).

Though it is a financially healthy and expanding company, the BMW Group

needs to step up its efforts to put keep Audi from taking over as the premier German

sports sedan manufacturer.

Internal Analysis

BMW’s greatest strength is that it’s still lauded as the number one German

sports sedan manufacturer in terms of driving capability and dynamics. Although



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Mercedes-Benz is never too far behind and Audi has recently made huge strides in

terms of performance vehicles, BMW is still on top.

Another intrinsic advantage of the company is the diversity of the markets it

caters to. There’s MINI for the younger, less affluent, enthusiastic, or eccentric.

There’s Rolls Royce for the extremely wealthy, and BMW itself has models ranging

in price from about $28,000 to $120,000.

The advent and implementation of EfficientDynamics also serves as a

strength that sets BMW apart from its competitors. Instead of pursuing the

extremely high performance market as Mercedes-Benz and Audi have done with the

SLS AMG and R8 respectively, BMW chose to look to the future and debut the i8

concept car. Shown in Figure 5, the vehicle is a high performance, mid-engine sports

car that runs on a combination of lithium ion batteries and very little diesel fuel

(BMW USA 2011). Although the production of this vehicle is somewhere in the

future, the research and development of it has resulted in BMW instituting some of

its features into vehicles being produced today to make them more efficient and

therefore more sustainable.

BMW is able to leverage these strengths and capabilities against its

competitors to gain a firm hold on the performance sedan market.

One of the BMW’s biggest weaknesses is its cost of manufacturing for its

products. Since BMW will only use premium materials in its vehicles, the

manufacturing cost can be quite high. This is reflected by the fact that BMW has

slightly less profit margins than its direct competitors.



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Another weakness is its product line contains perhaps too many vehicles.

BMW has three different types of SUVs, a few crossovers, a roadster, and four

different sizes of sedan. This can all be a bit dizzying to a customer and it can also

cause cannibalization of sales. For example, the customers that were content to buy

3-Series coupes might go for the new, smaller, cheaper 1-Series coupe. This results

in BMW losing money. One way that this can be addressed is to phase out certain

models that don’t serve a unique purpose.

Very few companies focus on the future like BMW does with its

EfficientDynamics initiative. This combination of performance and sustainability in

and of itself makes it very difficult to substitute other vehicles for BMW’s own

machines. Although there are some weaknesses that need to be taken care of, the

internal structure of BMW is healthy and will continue to contribute to the

company’s overall success.

External Analysis

The markets in which BMW competes are extremely competitive and

prestigious. Even a small mistake by a company can result in losing thousands of

customers to a rival auto manufacturer. Utilizing the Porter’s Five Forces model, we

can analyze and define BMW’s competitive market.

There is little to no threat of entry of new competitors. There are very high

barriers to entry and it’s almost impossible for a new and unknown company to

entry the mid-level luxury segment, where the brand name is just as important as

the product itself. Customer loyalty is a huge factor in this market. It would be wildly



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expensive to enter the market and the odds of success are extremely slim, therefore

the threat of new entrants is considered very low.

The threat of substitute products or services is very relevant in the mid-level

luxury auto market. Buyer switching costs are relatively low and each substitute to a

BMW product from Audi or Mercedes-Benz is also a very high quality product.

Therefore, buyers have ease of substitution and can quickly trade-in their BMW for

a competitor’s vehicle. The prices are also generally very similar with BMW and

Mercedes-Benz having very similar prices and Audi being a little more expensive, so

the threat of substitution is medium.

Buyers do not have overly high bargaining power in this segment, mostly

because these vehicles are bought and driven by people who aren’t overly

concerned with price. The buyer concentration significantly outweighs the firm

concentration, but there is a high dependency on existing channels of distribution.

BMW offers multiple channels of distribution, including retail sales, custom orders,

and European delivery, shown in Figure 6 (BMW USA 2011). The bargaining power

of buyers is medium.

Most of the suppliers BMW and its competitors use are medium to large

businesses, because there are not many small parts manufacturers in the segment.

As a result of this, they have some power in determining price, delivery and

distribution, but the reality is the suppliers are not big enough to provide a threat of

forward integration. Supplier switching costs are higher than firm switching costs, if

for no reason other than the fact that any supplier would jump at the opportunity to



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provide parts for high-level German auto manufacturers. The bargaining power of

suppliers is medium.

The intensity of competitive rivalry is extremely high because all of the

companies in this segment are global giants with billions of dollars in assets. They

can compete on virtually any level that BMW can. In a market where prices are not

necessarily the focus for buyers, quality, reliability and customer service take over

as the driving forces every time someone purchases a BMW, Mercedes-Benz, Audi,

or even Lexus. The intensity of competitive rivalry is very high.

The markets BMW thrives in are extremely competitive. Therefore, BMW

must make sure all its steps as a company are calculated and deliberate to ensure it

will continue to hold on to its market share.

BMW and its Competitors Strategies

BMW and its competitors employ different strategies to retain profitability

and market share. BMW’s own strategy has always been to make the highest

performance sports sedans on the market and being the market leader in terms of

driving dynamics and pure enjoyment. As of late, BMW has incorporated

sustainability and efficiency into its strategy, without diminishing the emphasis on

performance. The table below shows a comparison between the strategies of BMW

and its direct competitors.



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Firm Name Strategy HighlightsRationale for

StrategyPros and Cons

BMW

Performancevehicles that arealso efficient and

sustainable.Emphasis on the joy

of driving.

“If it ain’t broke,

don’t fix it…” Niche market,

historicallysuccessful as the

premier sports sedanmanufacturer,

strives to be marketleader by looking

forward to alternatefuels.

Pros: Steady hold onperformance sedanmarket, customers

appreciateEfficientDynamicsinitiative

Cons: Refusal tocompete directlymodel-for-modelwith competitorsalienates some

customers

Mercedes-Benz

Relying heavily onhistory and prestige.

The highest quality,long lasting, mostforward-lookingvehicles on the

market.

History of highquality, reliable

vehicles. Strives tomarket leader interms of technology,equipment (such asnight-vision, auto-

parking, etc.)

Pros: Arguably mostrecognizable name

in the luxury automarket, always firstto embrace new techCons: Not the mostefficient vehicles

Audi

Luxurious interiorswith high quality

materials. Beautifuldesign. An emphasis

on performancewith the safety andall-weather prowessof four-wheel-drive.

Interested inBMW’s

performance carmarket, with their

own four-wheel-drive andturbochargedperformance

engines

Pros: Have beenable to take some of

BMW’s market

share whileretaining their own

identityCons: Have notaddressed the

unreliability of some of theircomponents

Value Chain Analysis

Inbound Logistics: In 2010, BMW manufactured 1,481,253 four-wheeled vehicles

and 112,271 motorcycles. These numbers have been steadily increasing for the past few

years and BMW’s suppliers have been compliant and willing to provide more materials.

BMW is, in true German fashion, a meticulous and well-run company, so lateness in any

aspect is not tolerated.



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Operations: BMW’s global operations are an example of how any worldwide

company should manufacture their product. Major manufacturing facilities can be found

in Germany, the UK, USA, India, Indonesia, Malaysia, South Africa, Egypt, and

Thailand. The company makes sure that it monitors the value of its products from all over

the world. It sees to it that the products in other places are given the appropriate value it

should have. The company also makes sure that the different factors that are under

inventory and supply chain are not having problems. Figure 1 shows how BMW has been

able to simultaneously cut their workforce worldwide and increase their revenues.

Outbound Logistics: BMW’s outbound logistics are generally outsourced to

individual dealers. Dealers across the world order and receive BMW vehicles on their

own basis. Each BMW authorized dealership is a small to medium size business in itself,

and this takes pressure off of BMW plants to institute fixed delivery schedules. For those

customers who opt for customer ordering or European Delivery, BMW gives the option

to track their cars online from the order date through the production process, all the way

to delivery.

Marketing & Sales: In 2010 BMW embarked on one of its biggest branding

campaigns to date. A new theme, "The Joy of Driving," was integrated into every

television, digital and print ad. The theme shifted the focus from the car to the car owner.

One of its print ads summarizes the message: "At BMW we don't make cars, we make

Joy." Also, there have been some shots fired at BMW by its competitors, namely Audi.

BMW has not been one to publicly defame its competitors, but in Figure 7, the company

responds in emphatic fashion.



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Service: BMW’s new service campaign is called “Maintaining Joy.” Premium

service is part of the BMW brand image. According to Figure 8, BMW charges no money

for the first four years/50,000 miles of ownership (BMW USA 2011). They also offer

Unlimited-Mileage Roadside Assistance for the first four years of ownership.

Firm Infrastructure: BMW offers millions of euros in dividends each year for

stockholders. BMW is constantly aiming to please its shareholders by curbing spending

and increasing production. As far as social responsibility, BMW contributes efforts to

education, the environment, and philanthropy. In 2010 alone, BMW donated $28 million

to education, community and the arts.

Human Resource Management: BMW offers the Service Technician Education

Program (STEP), which is a secondary education program that guarantees the quality of

employees at BMW dealers in North America. BMW identifies highly motivated

individuals and instills in them a responsibility to help the company succeed.

Technology Development: BMW invests a great deal of money and resources into

research and development. This is made clear by the EfficientDynamics concept vehicles

and the constant new features added to company’s flagship model, the 7 series.

Procurement: BMW has recently overhauled its procurement and sustainability

systems, which resulted in being recognized as the greenest automaker in the world by

the Dow Jones sustainability index.

Competitor Analysis/Temporal Comparison: As cited above, BMW, Mercedes-

Benz and Audi are intensely competing in the German mid-level luxury auto market. All

three firms spend a considerable amount of marketing. Historically, BMW has generally

set the precedent in marketing and does little to respond to competitors. Audi has recently



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begun aggressively marketing its products directly against its competitors, comparing its

“new luxury” to outdated, antiquated (BMW, Mercedes-Benz) “old luxury.” There are no

relevant temporal comparisons to make, aside from the global recession. BMW and its

competitors lost money and customers during the worst years of the recession, but all

three companies have bounced back stronger than ever.

Recommendations

1. No significant change – after analyzing the company thoroughly, BMW looks

to be in healthy shape financially and structurally. There are no major

weaknesses in its strategy or positioning. If they continue to emphasize

efficiency and performance in their products, they will continue to increase

their market share.

2. Reduce number of models – most customers would agree that having several

models that aren’t signif icantly different is not only confusing, but also a

waste of resources. By discontinuing the lowest selling models, BMW can

specialize and concentrate their resources on making their core models even

better. As stated before, quality and reliability are the most important value-

adders for customers in this segment.

3. Aggressive marketing strategy – although BMW has just implemented its

highly successful “Joy” campaign, the company does not have a history of

hostile advertising. Taking a page out of Audi’s book and going straight at the

competition in blatant advertising would be a refreshing change from BMW’s

usual conservative marketing. It would reassert the company’s role as the

market leader in sports sedans.



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APPENDIX

Figure 1

2006 2007 2008 2009 2010 Change in %

Sales volume – Automobiles

BMW 1,185,088 1,276,793 1,202,239 1,068,770 1,224,280 14.6

MINI 188,077 222,875 232,425 216,538 234,175 8.1

Rolls-Royce 805 1,010 1,212 1,002 2,711 –

Total 1,373,970 1,500,678 1,435,876 1,286,310 1,461,166 13.6

Sales volume – Motorcycles

BMW 100,064 102,467 101,685 87,306 98,047 12.3

Husqvarna – – 13,511 13,052 12,066 -7.6

Total 100,064 102,467 115,196 100,358 110,113 9.7

Production – Automobiles

BMW 1,179,317 1,302,774 1,203,482 1,043,829 1,236,989 18.5

MINI 186,674 237,700 235,019 213,670 241,043 12.8

Rolls-Royce 847 1,029 1,417 918 3,221 –

Total 1,366,838 1,541,503 1,439,918 1,258,417 1,481,253 17.7

Production – Motorcycles

BMW 103,759 104,396 104,220 82,631 99,236 20.1

Husqvarna – – 14,232 10,612 13,035 22.8

Total 103,759 104,396 118,452 93,243 112,271 20.4

Workforce at end of year1

BMW Group 106,575 107,539 100,041 96,230 95,453 -0.8

Financial figures

In euro million

Revenues 48,999 56,018 53,197 50,681 60,477 19.3

Capital expenditure 4,313 4,267 4,204 3,471 3,263 -6.0

Depreciation and amortization 3,272 3,683 3,670 3,600 3,682 2.3

Operating cash flow2

5,373 6,246 4,471 4,921 8,150 65.6



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Profit before financial result 4,050 4,212 921 289 5,094 –

Profit before tax 4,124 3,873 351 413 4,836 –

Net profit 2,874 3,134 330 210 3,234 –

Figure 2

Show table: Ten-year Comparison

http://annual-report.bmwgroup.com/2010/gb/en/facts-and-figures-2010/bmw-group-ten-year-comparison/189-zehn-jahres-vergleich.html?bw=880&bh=600







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Figure 3



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Figure 4



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Figure 5

Figure 6



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Figure 7



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Figure 8



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