24 June 2014

BMW Cutting Costs

BMW is quite profitable, as are premium brands generally. There are differing reports on the amount that is wished to be saved, however it seems they they do want to cut costs. If you are making solid profits, why the need to do so? I can think of a few reasons that are behind the move.

Main reason: It seems to me to be tied to the bragging rights of being the biggest premium brand by unit sales. BMW has that presently, but MB and especially Audi are closely following. Audi has the advantage of being part of the VW Group, sharing costs with the other makes within the company. BMW doesn't have that kind of cost saving, apart from a little with the MINI brand. I see this as trying to match Audi's costs, which must be lower.

Am I the only one who sees this as a bland and overpriced?

Lesser one perhaps: Another issue is creating niche vehicles. BMW is a master at finding ways of creating more model variants. These sell in smaller numbers so getting a good return on such must be harder than in more mainstream segments. This will surely reduce profits per sale, even if overall profit increases.

The ultimate niche model, the BMW X6. Not that practical.

Possible one: Also, the line between premium marques and mainstream makes is not as clear. Premium car makers have moved more into smaller segments, while everyday cars are getting more sophisticated features. So while many buyers happily pay a sizable excess in price over mundane brands, in reality the gap is quite narrow now. If the public finally notice the extra paid for premium makes simply isn't good value for money, sales could shift to less prestigious  models*.

Summary: Every company should manage expenses carefully. How far to take it is the key. BMW not only has two German competitors. Japanese car makers want to push their upmarket brands more. Jaguar and Land Rover are becoming big enough to be taken very seriously under astute Indian ownership. The Chinese now own Volvo and have big plans for that marque. It's getting hot in the kitchen and for BMW that means cutting some costs.

*One reason for buying a premium marque is the prestige of ownership. That is a strong motivation to drive a car with an upmarket logo. (Value for money is something that means a lot for me, but impressing the neighbours as I exit my driveway is is something I have no interest in). As long as such does matter for many, and premium brands manage their reputations well, there will be enough buyers for them to continue their success.

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