Is BMW in Trouble?

Today, I thought I would discuss this little conundrum BMW has gotten itself in.

I was able to spend sometime this weekend with some friends discussing the finer things in life; cars, fences and window blinds (please keep reading, in all seriousness this really has to do with cars). I am blessed to have friend ‘s that share my passion for cars, though we all have some what different tastes. Some like US built cars and trucks, others Japanese and of course German engineered marvels. During this discussion (the car portion) the one thing that I could not get out of my mind was how BMW has not learned from the past or from other ‘s mistakes.

GM has taken a severe hit in the past few years as has Ford and Chrysler. These companies had grown to be enormous entities with many models in every possible niche market available. Anyone remember that hot rod convertible pickup with the Corvette motor in it that Chevy was selling a few years ago? Was that something that really needed to be made and mass produced? You catch my drift. In the quest for global dominance and to take over the known universe these companies all lost sight of reality, good products with style and quality are what sell.

BMW in my opinion is now on this same self-destructive course. They seem not to understand or know when to say when. They are in the process of expanding their lineup into areas that they need not go. Are they really going to sell enough of the PAS to justify the R&D costs let alone the marketing…. oh that is right they are trying to achieve greater economies of scale and break sales records at the same time. With all of these new models and the ever expanding used car market there will be a million BMWs floating around.

That is the next part of the problem, if they continue to sell cars in increasing numbers by watering down the brand will BMW still be a strong marquee? Will 10 year old Johnny still dream of driving his first BMW, or since there are so many BMWs (including a great supply of pre-owned) Johnny sees them as what everybody drives (like a Camry) and decides he wants something that drives almost as nice but also wants it to be different. Up steps Jaguar (the new models being released are huge steps in the right direction) and the Italian Alfa Romeo. Part of the reason for the return of Alfa to the US is the exact scenario, they see an opening in the market where BMW once stood, the sporting/luxury niche with some flair.

I am a huge fan of the BMW product and understand the frustrations they have with being independent and not having the ability to reach economies of scale as others so easily can. I do not think branching out into niche markets and producing more cars is the answer. Porsche is a prime example of not needing to produce a lot of cars to make money, just making great cars and building in profit.

I hope BMW can self correct before they follow the footsteps of the “Big 3 “.

As noted today by Left Lane News, BMW is having a difficult time reaching cost cutting goals and is being strapped by rising materials costs. This is just the issue they have been trying to prevent; have they already lost the battle before the majority of niche vehicles reaches the market?

What are your thoughts, we would love to hear them!

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  • Jon

    I am not sure I see what you’re saying, YET…

    Yes, I truly had some nervousness many years ago, when BMW decided to throw their hat into the SUV ring. But I got over it, when I saw the execution of them.

    Now, with that said, if they release a minivan, I think they will have “jumped the shark” officially. It will be the end of the world as we know it.

    The 1 series, especially the 135i is an amazing step in the right direction, to return to the formula that made BMW great in the first place. I think there’s hope!

  • Jon

    Good article Michael,

    I must admit its really no surprise that BMW has grown their brand with SUV’s since there was a lot of potential sales over the last many years.

    I believe BMW is quick enough on its feet to respond to this issue much better than the big three. I think they have already have been working on figuring a pathway through this troublesome SUV market.

    I believe that lighter cars should be one of the paths, BMW has been getting a tad thick about the waist for several years. The 1 series is a good step in the right direction with a smaller footprint, however they are still heavy. I think that part of the equation is already being worked with their Efficient development however there is no good way around this base fact, more mass takes more energy.

  • Josh

    A large part of what got Ford and GM in trouble is a lack of flexibility in production. They both have solid cars in Europe that would be perfect for the new fuel-price-stretched American costomer, but they cannot build them at their truck plants because the assembly lines are completely different. If BMW can make a Z4 right behind an X5 in SC and a left hand and right hand drive Mini Coupes and Convertibles back-to-back, they can quickly dial up and down production to meet consumer tastes and demand.

  • Gragop

    Call me crazy – but I agree with this. The whole article is reinforced with BMW Group looking to further expand into other market segments. They have the sport/luxo market with BMW( this also moves into sportscar/ supercar territory with the possibility of an M1), a lower, niche market with Mini and the ultimate luxury market with Rolls Royce.

    Now there’s news they will resurrect older,now dead British lines like Austin to make a fun car below the base BMW’s. They’re turning into a GM or Ford by trying to grab at as many market shares as possible in as many markets as possible.

    Another indicator is the Top Gear review of the E90 3 Series. They noted that the 3 Series had become the car of choice for young executives in the UK, beating out a cheaper car like the Ford Mondeo. That’s a pretty big turn off to me if a car is considered as common as a Ford and I’m spending a lot of money to get it. That seems to actually work against the BMW branding of being an exclusive vehicle.

    I wouldn’t be surprised if the car market doesn’t turn another corner and in 5 to 10 years you see BMW spinning off some of these brands to come back and focus on core values that they’ve begun to miss.

    PS

    As for the 135i – look at it this way. For every good thing BMW provides, we get something frivilous in return. Hence the PAS vehicle and the X3 as a subpar SAV(I’ve driven one, it was a car built off the X5 and 3 Series parts bin – and not well at that) so you still end up with partial brand dilution.

  • Howie_In_AZ

    I don’t see a problem with BMW’s expansion plans. I believe most of the “niche” markets they’ve branched out to have been successful and have no reason to doubt their continued success. Personally I would never drive an X[356], a 7 series, a 6 series, or a Rolls (because my house costs less than half of one), but there are people out there that do, so go them.

    As for the other commenter who decided that BMWs are too commonplace for them, perhaps that person should question why they drive a BMW. I drive my E46 330i because it’s an amazing engine wrapped up in a wonderful chassis, manufactured by a company that has a rich racing heritage. I drove my E30 325iX for the same reasons, going so far as to prefer the E30 over an E46 330Ci, even though the E30s drivers side door would freeze shut in winters and it obviously didn’t have anywhere near the power of the 3l i6.

    Of course, all of this conjecture is rather moot since I highly doubt any of the commenters bought BMW stock. Don’t like the way the company is run? Buy some stocks and bring it up at the next stockholder meeting.

    Lastly, the statement “good products with style and quality are what sell” is utterly false as demonstrated by the proliferation of Wal-Mart and similar stores. People care less about quality and more about price, especially in the current economic climate. Americans specifically seem to have little forethought as to The Big Picture of exactly where their money is going and how it will effect them in the long run, opting instead for today’s cheapest product that they can fit into their oversized gas guzzlers.

  • CA

    Let’s all take a step back, compairing BMW to GM is way off the mark.

    First of all, BMW makes cars that people want to drive. They only make it in 1 brand and do not have all the global cars that hurt the “Big 3”. I admit, the X3 is not a home-run but, it is not a bad SAV.

    Second, the unions are killing the American auto makers. BMW will slow production if they see a trend developing. The unions drive the market, not the consumers.

    Third, BMW is still BMW. It is the cream of the crop when it comes to a drivers car. Not to mention that they have high quality marks. I would love to see a BMW in every driveway, it would force other manufactures to up their game. It would make Detroit have to build better cars.

    At the end of the day, when my kids grow up, I hope they will aspire to drive a BMW like dear old dad.

    Let’s Motor! CA

  • Chris B.

    I’m with CA. When you look at a BMW, when you sit in it and feel the quality of the materials, the size of the steering wheel and how it feels so right in your hands when you’re out driving. Everything is still done with a certain level of attention to detail and thought. What I’m most concerned about are the things we don’t see, like the more crucial parts of the car that are needed to work to keep things moving (mechanical components). I’ve heard and read in more than a few places that BMW is cutting corners in the materials they use to construct their cars making things more prone to break. Some BMW techs and those in the know even say they don’t expect newer BMW’s to last more than 100k mls. Not the BMW I grew up knowing… but then again I’m sure you could say the same thing for almost every other non Japanese car maker. We live in a throw away, “here today gone tomorrow” society. People don’t care so why should the companies that make the products we buy and use do the opposite????

  • Gragop

    To Howie: I own an E46 for the exact same reasons as you. However, if BMW is going for specific “branding” in market segments, one of there models being every third car in a parking deck at an office means that your “exclusive” car isn’t so exclusive, thus diluting the image of the car. I didn’t buy mine for image but it is nice to pay this much and not run across 8 of the exact same car on the way to work.

    I have an E46 coupe and I like the fact that I see 3 times as many E90’s as I do E46 coupes. That doesn’t make me any less of an enthusiast. I’m just making a point about BMW’s branding in general and their surge in their niche.

    To CA: My comparison of BMW to GM is simply for scale and another company with various world-wide brands. I could compare them to VW as well but VW doesn’t seem to be hurting as bad GM. My point is simply that by moving into many different markets and growing so fast, it’s easy to take your eye off of the ball and lose sight of the qualities that make a BMW a BMW.

  • You all make great comments, and my intention of this piece was to get some reader opinions and a thoughtful debate, thanks!

    There are few things that I would like to interject; First BMW is not on the same level as Walmart so the idea that people shopping at Walmart for cheap goods and the BMW market are not one in the same. On BMW marketing surveys, Quality and style are rated well above pricing as purchase factors so people buying are willing to pay more for quality. Drive and exclusivity are also key points. (That is not to say BMW drivers do not shop at Walmart)

    Also worth noting is that BMW does in fact have agreements with unions until 2013 and within these agreements are stipulations that mass layoffs or work-stoppages can not occur; this is no different than the Big 3.

    BMW makes cars under more than one brand, as is noted above (BMW, MINI and Rolls Royce) they are contemplating a fourth brand as well for smaller cheaper city cars as well.

    Where BMW is ahead of the game is in efficient dynamics, and in production facilities. They have adapted several but not all facilities to produce multiple products on the same line, all models can not be produced in all locations (we had covered this in an earlier article)

    I am also afraid of the quality dipping moving forward in areas of the car that are not visible; Audi is notorious for this and I have always felt that BMW materials were not as high of quality in the visible areas compared to Audi but were much better in the under carriage and hidden areas (sound deadening, engine components etc.)

    The 1 series coupe I have been told is actually a much better constructed product in the non-visible areas than the 3er and BMW has been cutting some corners in the 3 to reach an almost unobtainable price point in the US.

    I am fairly sure BMW will weather this storm but at the same time I hope those R&D costs for niche vehicles (many of which are just beginning to be tested) would have been better off spent elsewhere.

    And yes I am a shareholder!

    BTW- GM’s world brands and models are what keep it afloat, hence the reason all of the new Saturns will be Opels, and the Pontiacs will be based on Holdens!

  • Dan C.

    Sorry, disagree. GM’s problems in the past have been largely due to in-fighting between divisions. Each division behaved like they were in competition with each other, spending frivolously developing drivetrains, interior and exterior trim and deviating from standard vehicle platforms. To add insult to injury, the buying public saw their vehicles as badge-engineered, so buying a Pontiac Whats-It only cannibalized a Chevy Whos-It sale. However, GM didn’t benefit from badge-engineering because Whats-It parts generally don’t fit a Whos-It. Thankfully a lot (but not all) of this has changed since Lutz came aboard.

    BMW, on the other hand, leverages common development (e.g., the inline 6) across their entire vehicle line which allows them to offer niche vehicles with minimal expense. They need to do this to achieve the growth targets they’ve set for themselves — they can only sell so many 3, 5, and 7-series sedans. They’re only in danger of becoming “Big-3-like” if they begin overlapping their offerings and canibalizing their own sales. They’re nowhere near that point.

  • Dan, you are entirely correct. And excluding the MINI SAV (and that is still closed to the public) there are no vehicles that will overlap each other so BMW will not cannibalize sales from within and decrease sibling rivalries.

    In the car world it is tough to realize that even though there is a parent company the smaller ones try to out do the others for the sake of bonuses, hitting sales points and sometimes the other siblings get knocked down a bit.

  • Chaz

    I think BMW can compete by addressing niche markets. The X6 certainly is something unique. Unfortunately, 1 series is too similar to the 3 series weigh wise, but you can see they are really trying to stay up market with that one (avoiding the 4cyl hatchback version). Certainly a Golf is much more practically packaged than a 1 series, but the 1 is relatively unique. Its not another Golf competitor (in the US), and that is its niche.

    As for GM, the new CTS does go head to head with BMW, and anything GM makes in Germany you can (or soon will be able to) buy at your local Saturn dealer (with the same limited feature choice that BMW gives us). The GM comments here are 20 years out of date. BMW buys GM transmissions and advanced hybrid systems for good reason. GM is already building better cars:

    “Enormous” is the word that Csaba Csere, editor-in-chief of Car and Driver magazine, uses to describe GM’s progress. “Their cars look good on the outside, have a luxurious sense inside and drive well,” says Csere, whose publication used to routinely blast the General’s vehicles.

    I don’t know that GM’s goal is to compete with BMW, but the competitive pressure is everywhere.

    Europe’s focus on diesels, where the rest of the world is focusing on hybrids and electric, is where GM and Toyota may end up leapfrogging BMW if things still keep going in this direction. Efficient dynamics isn’t enough.

    (P.S. Holden only designs one car for GM, and the UAW gave GM huge concessions allowing them to replace old high paid workers with low paid entry level workers – that is a game changer).

  • Jason

    The Porsche comparison is interesting because Porsche afficionados (at least many of them) bemoan the existence Cayenne SUV and to a lesser extent, the Cayman, as diluting the brand.

    Of course, Porsche is wonderfully profitable but still felt the need to invest in Volkswagen, whether for engineering/cost sharing or profit or both it’s still up in the air.

    Even the most ardent 911 fan cringes at some of the option pricing and it’s sad to see the Cayman underpowered in order to preserve the honor of His Royal Highness the Carrera.

    Personally, as an owner of a 3 series coupe, I wish the 1 series did not exist, but I understand BMW’s motive, particularly in a weak-dollar world. I just wish the 135 didn’t look like a 335i coupe hit with an ugly stick.

    And that, in a nutshell, is the core of the problem imho. Automotive brands suffer when models are poorly designed, poorly assembled, or poorly priced. Introduce a great new car – it’s a credit to the brand! Introduce an obvious dog and the brand suffers sooner or later.

    Has BMW reached the point where their engineering and design teams are overextended? Has quality suffered because of additional units and styles being pushed out the door?

    Not yet … so I tip my hat to BMW for now.

  • Well, BMW didn’t need to make an X6, that’s for sure!

  • We have some great readers here! I thank you all for the open dialogue and opinion.

    We are all very passionate here about BMW and just want the best.

    I am very intrigued to see if when next few years Alfa Romeo comes to the states if many true BMW fans will convert if BMW begins to get watered down, the new Jag has already shown to be a hit with many 5 series fans.

    I have no personal experience with the modern day Alfas aside from what I have read or seen via Top Gear. The reviews all rate the drive slightly behind BMW but they get higher marks in design and exclusivity in relation to the comparable BMW model.

    BMW co-developed along with Daimler those very hybrids you were talking about Chaz, there are also future technologies from that collaboration on the way. BMW is the leader in Hydrogen power (combustion). BMW has been waiting patiently for the battery industry to produce Lithium Ion batteries worthy to power a car because they feel the current batteries are too heavy and inefficient for a true hybrid/batter powered car (this was discussed back when the orignal X3 Efficient Dynamics Hybrid was premiered). So it is not that are behind the times, it is just that diesel is as efficient as a hybrid with better performance so why not use a diesel (and cost over the life of the vehicle is cheaper)?

  • Chris B.

    With Tata as owner of Jaguar you will see the era of the best built, highest quality Jags ever! Tata has such a large resource pool and so much cash flow from multiple businesses Jaguar going forward will never have a bad day.

    I think BMW going mass market is perfectly fine so as long as they don’t make cost cuts that will literally cost them in recalls and reputation. I hope after the 1er the innards of modern BMW’s are much better built than say the E90 and others. There’s still a intangible aspect of BMW ownership that will keep many coming, especially in the emerging markets (they will overtake the U.S. as BMW’s primary market, so they count, big time).

  • Im curious, somebody mentioned the fact of the “headache with being independent” and im wondering why that would be a problem. To me, that seems one of the things that makes BMW stand out over others that its not tied down to another lineup design/structure/assembly line. It can make the cars it wants

  • Eliot R.

    The thing to remember: a good car will sell no matter the brand. Price it right, and a good car will have no problem selling. BMW might be pushing their products to new niches, but if they make a good, unique, well priced car, it will sell.

    The only area of concern that I have with the BMW is with their new V-Series of vehicles. I really have no idea what these vehicles are trying to target. A slightly taller 5er wagon is completely worthless when the X5 is already there.

    But at the very least, BMW will do very well because they have a well defined vision of what a BMW product should be. This is, in my opinion, the main problem with all the American car makers. All of them are constantly shifting philosophy with regards to their brand image and scheme. There is no consistency. Each Chevrolet model has a no common denominator. Not every Chevy drives well, or is efficient, or is luxurious in comparison to the segment’s competitors.

    A BMW, on the other hand, always drives wells and is always well built. BMW has a clear definition of the brand, of what each BMW must deliver. And because of that, BMW will be fine.

  • Chris B.
    Im curious, somebody mentioned the fact of the “headache with being independent” and im wondering why that would be a problem.

    BMW wanting to stay independent means they have to keep finding ways to stay profitable in an ever changing world where the auto industry is almost always encountering obstacles that threaten companies like BMW’s position.

    Compare independent car makes against conglomerates and you’ll find the former are few and far between. BMW staying independent means they will have to make moves that may displease the enthusiast crowd but will be ultimately better for the company from a business perspective, and this is where BMW is now. What would you rather have, BMW making funky cars or spinning new vehicles off of corporate platforms shared with even bigger mass car makers like GM? I think I’ll take the former, personally.

  • Jon

    One thing BMW still has going for it in spades that the big three are lacking is their professional reputation. The big three are still saddled with the brand image they got from making sub-par vehicles for a generation. BMW isn’t perfect though as they have made more than one turkey and I do have concerns with the price point overlap that they are developing between the Mini brand and the BMW brand. I think the X1 and the 1 series are tied in a bit close with the upper reaches of the Mini brand.

    I do hope that the eventual 4th brand will be niched in below the Mini brand. I think this would make sense as a full spectrum for BMW. I have a lot of faith in BMW (a shareholder also) but I do believe that changes that are going on in the automotive industry is far from complete.

  • Eliot R.

    I can see where you are coming from Chris, but I think that the problem with GM is exactly what you are talking about. I think the reason why Chevrolet’s lineup is lacking is because they having troubles with its lineup crossing over Pontiac’s and Saab’s, etc. By being independent, they make the decisions they want to make and end up making cars that GM wont make because of the hundreds of redundant models they already make.

  • anthony

    regards,

    agree with the past mistakes, but theres one thing that the germans would not do and that is to get where the americans (cars manufacturer)are now. the one thing that will set apart US brands and german brands is the pricing. theres no way that bmw, merc, and audi will sell msrp that low. with that in mind the german made cars will always naturally be in tier 1 (in terms of high end market). The only mistake that can dwindle down their quality is when bmw will purchase GM, Ford or chyrsler or korean cars (to the exttreme), a mistake merc made few years ago- by acquiring chrysler (resulted in low quality merc cars. also put financial strain to the mother company). i think bmw has learned and did so by purchasing Rolls Royce and mini (to certain extent loss money with Range Rover). One thing that high end manufacturers cant do is to buy mass produced cars (ie merc to chrysler). i think in that respect bmw has made all the right moves. bmw churning out plenty of products X6 and so on is to rival merc. As they do not want to loose market share. One good example is the formula 1. BMW entered and bought out sauber team is a good example to compete with Mclaren-Mercedes benz. They just dont want to loose out to the stutgart manufacturer, in almost every market….

  • Chaz

    Interesting topic you have started!

    It will be interesting to see what BMW makes in the future engine wise. They have some wonderful & efficient engines in Germany (i.e. 320d), but apparently are hesitant to ship them here to ruin their up market image in the US. Hybrids certainly have an up-market image in the US and can allow BMW to make a fuel efficient car and keep their US upscale image.

    As for development, when I first met with the Hybrid engineers it looked to me like a bunch of GM and Chrysler guys developing the system (although I really should say Daimler-Chrysler). I don’t remember BMW being involved at the beginning (2004). AS I recall, BMW joined the party about a year later (late 2005). Either way, the BMW system was largely designed in the US (originally by GM, Chrysler, and Diamler)

  • Ross

    “Another indicator is the Top Gear review of the E90 3 Series. They noted that the 3 Series had become the car of choice for young executives in the UK, beating out a cheaper car like the Ford Mondeo. That’s a pretty big turn off to me if a car is considered as common as a Ford and I’m spending a lot of money to get it. That seems to actually work against the BMW branding of being an exclusive vehicle.”

    You cant compare BMW to the big three but then again BMW is not a Ferrari or Lambo? The 3 series is the bread and butter of BMW you are not going to get exclusivity what you are going to get is one great drivers car. So young executives would rather buy a 3 series than a Mondeo…….if they can afford why not wouldnt you?

    I am glad BMW is getting back to the basics with the 1 series even though some critize the weight thats the cost for safety and government regulation.

    I look forward to getting the 135 when time permits it is an awesome car.

  • BMW STILL STRONG ENOGH TO PRODUCE SUPER SPORT CARS;DO NOT STOP THE PRODUCTION OF CS CONCEPT WHICH WILL BE THE NEW 8 SERIES. BECOUSE MERCEDES HAD CLS CLASS SO BMW SHUOLD HAVE CS 8 SEREIS, IT IS A MUST, STILL IN THE MARKET SOME CUSTOMERS FOR SUPER SPORT CARS

  • BMW IS THE BEST CAR EVER IN THE WORLD ; GO A HEAD AND TAKE AN ACTION TO PRODUCE AN M1 SUPER CAR TO COMPETE AUDI R8 , MACLAREN, LAMBORGENIE & FERRARI

  • mi

    let’s face it BMW’s are driven by a load of wankers!