Market Conditions & Profile of BMW Cars in the US - Case Study Example

Academia Research d 5th December 09 Topic: Economic Analysis on BMW cars in US car industry Introduction BMW produces motorcycles and upscale automobiles. The company sells vehicles under three luxury brands: BMW, Mini, and Rolls Royce. Despite the worldwide automotive downturn in 2008 sales volume of BMW has continued growing. Economic slow down and weakening dollar made BMW to lose in US market because it has one of the highest sale in the US market.. The company has offset some of the losses in the US and Western European by exporting cars to emerging markets where growth still continues at rapid rate. BMW has effectively tapped demand for smaller fuel efficient vehicles that has demand in the market. Mini and the 1-series rapidly grew at much higher rate through 2008. Since the early days of the new millennium BMW has been one of the first automakers to utilize flexible factories in which more than one vehicles model could be produced at the same time. This enabled the company to meet shifts in market demand more effectively than BMW's competitors could. BMW challenges to retain its market position in the international market for luxury cars. Many automakers, such as Hyundai with its Genesis sedan or Nissan's Infiniti brand are increasingly successful in realizing higher margins earned on luxury vehicles. BMW is rated behind luxury brands such as Lexus, Porsche, Mercedes, and Infiniti for these reasons Market Conditions & Profile 1. The car industry is undergoing a rough phase for some years because of recession set in many parts of world including USA. According to Mr. Kinoshita of Toyota Credit squeeze has made sales and profits tumbling caused by deteriorating demand. . The BMW Group reported a year-to-date sales volume of 70,606 vehicles, which is 29.4 percent, compared to 99,977 vehicles sold in the same period of 2008. Experts project that in future strongest sales growth is unlikely to come from the US and Europe which became more a manufacturing centre. Sales growth is likely to come from Asian countries such as China, India, Middle East and Russia where demand for motor vehicles is increasing. Sales in number of vehicles are shown declining in the following table. Supply side During recession the demand for the product is the primary factor. Supply is usually flexible to adjust with the demand without which products will have to be idle in the market or to be sold at reducing prices. There are so many suppliers in the market and most of them are languishing for want of adequate demand for vehicles. In this situation prices fall. A price war has been set in the premium car market among importers and dealers who are struggling to survive in a market with declining sales. And now BMW has entered the battle for the second time with price reductions. The new pricing of BMW cars are lower by about 15 per cent in Mini and BMW range of models. (Despite sales decline of 38.4 percent) The car market in US is very competitive with so many manufacturers and suppliers. The main competitors of BMW are Daimler Chrysler AG of DAI, Lexus of Toyota of, Audi of Volkswagen, Infiniti of Nissan; Cadillac of GM. Whereas other firms in the automobile sector manufacture commercial trucks, lower market vehicles, and buses as well BMW focuses exclusively on the production of premium personal automobiles and motorcycles. They have fewer brands that are easily recognisable. This specialized product positioning has earned success to the company in the US market with 2% of market share. GM, the local US company held the maximum market share in 2006 but fell down to 19% in May 08. Toyota has increased its market share from 15% in 2006 to 18% in May 08. Ford has lost market share from 17% to 15% in May 08. Honda has increased its market share from 9% in 06 to 12% in May 08. BMW maintained its market share at 2% in May 08. Foreign companies like BMW, Toyota, Lexus and Mercedes Benz represent one-third of all cars manufactured in the United States.Their operation is enormous and not infected by unionism.. (The U.S. car industry) Capital -Intensive firms with economies of scale and innovative technologies 2. Most of car companies are very big companies with involvement of large capitals. They have to secure a position in the market which can guarantee them the economies of scale to be competitive. BMW is also such a company which has the economies of scale and other financial strength to stand solid in the market warfare. BMW was once humiliated by Toyota when the Japanese company launched its car in US backed by latest technology and service expertise with high profile and intensive service care. During eighties BMW had suffered business when the brand declined its unit sales from 96000 in 1986 to 53,000 in 1991. The mighty competitor Japanese manufactures established its foothold in the luxury market segment by a new product positioning and price reduction that BMW could not do. This is a fit case to understand how a new technology can improve demand for products, reduce prices and open new avenues for demands. BMW had old fashioned positioning. Some economical and political events taking place in the US such as the tax reforms, environmental analysis, and stock market crash in 1987 had contributed to the loss of market share of the company. (Martin Brennan, BMW reduce prices again) Social values and consumer behaviour in the eighties were changing fast in US. Consumers became conscious of their consumption that led to value oriented purchase. This became instrumental to pulling down the sale of BMW in favour of the Toyota. The new exchange rate of DM-Dollar increased the prices of cars by 24% in 1989. The market was highly competitive and there was no more scope of complacency. In luxury product segment in which the buyers were ready to pay premium prices they looked forward to a really premium product that was better fulfilled by Toyota cars. Although there was no perfect competition but in consumer products market the lifestyle matters and Americans are fast enough to adopt new changes and better stuffs that makes up the new changes. BMW was late in bringing this change over in the eighties. Demand makers 3.. Higher oil price of crude oil, which is running at $75 per gallon, has killed the prospects of buying vehicle by US youths who are the main prospective buyers of all types of vehicles. According to both economists and industry officials oil prices in average of $60 and $50 a barrel in 2009 by the end of the year, may help the market to recover (Car companies look beyond recession) news.bbc.co.uk/2/hi/7674505.stm - Martin Brennan, BMW reduce prices again) Disposable income with people which can be used to buy durables need be with consumers. Recession scuttled this opportunity and reduced demand for cars. The ordinary family with less disposable income did not dare buying costly cars. It is only a fraction of youth with new purchasing power and less family responsibility could do this. Fashion buying is another feature among American youths who are ready to pay even higher prices for fashionable products that could fulfil their psyche. Canadian car prices compared to US car prices are the best example. Both are free markets closely attached but the same BMW cars are differently priced and US customers have to pay much higher. It is possible because the psyche of fashion is not rampant with Canadian buyers. 4. How to improve the US market and product positioning of cars There are already so many foreign car companies in US as noted above. They fill a big gap of market where the local manufacturers failed to deliver. Giant company like General Motors have failed miserably and needed to bail out by the Government. According to my opinion, at present there is no need for more foreign companies unless some innovative technologies or cost effective cars like TATA NANO comes and offer low cost vehicles to the recession stricken US consumers. The emphasis on local companies to improve their performances is more the demand of the day instead of foreign technology or capital. Cost was the major problem of GM which was not cut when sales of the company cars fell down. The main reason was the fixed nature of cost. Management responsibility is to find ways and means to regulate the cost to keep it proportionate to sales revenue by cutting labour cost, layoffs, inventory cost cutting in supply chain, closing some portion of plants and other means. Unfortunately these measures were not given priorities. Because of the presence of unions labor layoffs could not be possible and the bail out package ultimately was the result. For about four years General Motors have been losing in the market but Harley Davis has been gaining. Ultimately GM has failed after a loss of about $82 billion in 2008 and Harley is still survived with a net gain of $3.6 billion. Both are in the automobile market in USA. There were too many cars and too many dealers in the market for GM cars. They could not focus on any one or two. In order to maintain the sales volume dealers started price cutting among them and damaged the interest of the company. "GM makes cars people don't want" GM is too slow to innovate because of its size. GM is too bureaucratic and unable to adjust to changing markets. GM's dealer network is too large. GM sold off its formerly profitable financing business. These are the charges made on GM as the reason for its failure. (Why GM failed) "What GM did not do about the basic of marketing is not producing automobiles people wanted to buy and excited to own, leading the reinvention of the automobile based on promising new technology, focusing on the core brands to consistently deliver on their promises, and. streamlining the dealer network to ensure the best sales and service" Toyota did this and won the US market (Branding Strategy August 09) (Why GM Failed, blogs.harvardbusiness.org > Karen Berman & Joe Knight) In the 21st century the scenario is quite different with different branding, marketing and advertisement. There is variability, heterogeneity, new aspirations and preferences backed fast growing wealth and possessions. The core competency of the firm has to be on the forefront and used properly. The marketers need to understand those new changes and gear themselves to these changes. Only then they will be able to prolong their existence in the market with growth and delay maturity. Successful car companies always followed this basic rule and survived as Harley Davidson did. The declining market scenario of BMW in 2009 April 2009; April 2008; %; YTD 2009; YTD 2008; % BMW brand: 15,705; 26,735; -41.3; 58,436; 85,100; -31.3 Passenger cars: 12,826; 20,930; -38.7; 47,066; 67,083; -29.8 BMW light trucks 2,879; 5,805; -50.4; 11,370; 18,017; -36.9 MINI brand: 3,657; 4,713; -22.4; 12,170; 14,877; -18.2 TOTAL Group: 19,362; 31,448; -38.4; 70,606; 99,977; -29.4 References: BMW Group U.S. Division Reports April 2009 Sales Branding strategy(Aug09),What Killed GM Brand Marketing. | Sales Machine | BNET blogs.bnet.com/salesmachine/p=1975 Car companies look beyond recession, news.bbc.co.uk/2/hi/7674505.stm Despite sales decline of 38.4 percent in (April 1 May 2009) www.justgoodcars.com/car-news.../auto-news-2004.html Jorn Madslien. BBC NEWS | Business | Car companies look beyond recession 23 Oct 2008 .news.bbc.co.uk/2/hi/7674505.stm The U.S. car industry: not just Detroit anymore | PRI.ORG www.pri.org/business/economic-security/not-just-detroit.html Why GM Failed, blogs.harvardbusiness.org > Karen Berman & Joe Knight - Martin Brennan, BMW reduce prices again18 Oct 2009 www.tribune.ie/business/motoring/.../bmw-reduce-prices-again/ - Read More