BMW has been slammed by the recession.
That seems to be the gist from the Detroit News. According to the article, luxury car manufacturers may be having a difficult time making sales because there will be less interest in fast cars. BMW has had to downsize its fleet. The BMW Series 1 and the MINI account for 30 percent of BMW’s sales. Well, profit margins have been falling since 2000 when they were under 9 percent until in 2008 they were as low as 1 percent. It’s not helped with the fact that BMW does not have the scale of production to compete with such companies as Audi, Lexus, Acura, and Infiniti. These companies use the output from companies that are partnered with them (VW to Audi, Lexus to Toyota, Acura to Honda and Infiniti to Nissan). This makes the production of cars a lot more cost efficient because companies can share components within their brands. Moreover, Mercedes has its truck and bus manufacturing to help cushion its luxury cars and make money when the cars are not selling.
And there are more problems. For example, BMW has consistently sold about 25 percent of its cars in the U.S. and about 10 percent in Great Britain. But due to weaker currencies, BMW have been forced to export and offer its cars for less to keep them competitive. And this means that profit margins are less.
Moreover, rules in the United States and Europe are calling for higher fuel economy and that is getting luxury car makers to sell fewer high performance vehicles and offer smaller cars. This results in a squeeze on the profit margin because high performance vehicles can be sold for more money and thus bigger profits than the smaller models. Analysts are saying that BMW is making profit margins of only 5 percent to 6 percent and this will be ambitious in the new realities of the economy in 2012 and beyond.
It’s not all doom and gloom. CSM Worldwide is predicting that German luxury car manufacturers will gain market share at least in Western Europe. It expects that market share for luxury car manufacturers will actually rise from 15.3 percent to 19.5 percent. However, most of those cars being sold will be the cheaper models like the 1.6 liter 1 Series cars for BMW and the A-Class for Mercedes. Again, this will put a squeeze on profit margins.
Our take? Luxury car manufacturers, welcome to the real world.
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