Business Week has a great article on the general atmosphere of the German auto industry and the specific issues it faces. Highly recommended for those who want to get a picture of the challenges companies like BMW face. Here ‘s a quick excerpt:
>Some senior executives already question whether Daimler and BMW will survive the crisis as independent companies. And close examination reveals that both companies significant Achilles heels.
>The biggest risk for BMW stems from its successes in recent years. The Munich-based company risked almost everything for its goal of finally overtaking rival Mercedes-Benz. BMW has almost doubled its car sales since 1999, and since 2007 the Bavarian carmaker has been the world ‘s top seller in the premium class.
>BMW has achieved this mainly by expanding its model line downward, with the 1 Series and the Mini. This weakened the company ‘s profitability. But BMW has also boosted its sales by offering customers attractive leases and car loans; today this approach is used to sell every second car the company moves off its lots. This has increased risk.
>While Daimler has only about €11 billion ($13.8 billion) on its books for leased vehicles, it is almost €20 billion ($25 billion) at BMW. That is BMW ‘s major weakness.
>BMW based its leasing calculations on an estimated residual value for the cars when customers return them after three or four years. But this value has little to do with reality these days, because used car prices fall during an economic crisis. Besides, more and more customers who purchased a BMW on credit can no longer afford their car payments. In the first nine months of this year alone, BMW had to establish reserves of more than €1 billion ($1.25 billion) to make up for the difference, and more reserves are likely to follow.
>The second risk for BMW lies in the fact that customers are increasingly buying smaller models, or at least are opting for smaller engines in the larger 5 Series and 7 Series. Because of this, Munich-base engine factories have slid into the danger zone this year.
You can read the rest below:
+ German Auto Industry Facing the Abyss / Business Week