The BMW Group has remained for years the largest premium automaker in the world, but it is increasingly obvious the sales crown has become increasingly costly, with earnings margins shrinking and the competition catching up.
The German automaker has relied on its record sales of cars and SUVs to bring in the hefty profits necessary to keep up with technology, development and research spending, all the while also racing to meet tougher global rules on fuel consumption and emissions. But it has become apparent that not only sales from rivals Audi and even Mercedes-Benz are closer than ever, but the profits are also on a reduction pattern recently. The latest financial results, last year’s fourth-quarter profit tally shows the old motto “sales grow, profits look after themselves” motto is starting to wear off. According to preliminary results, BMW’s core auto unit has had its lowest earnings margins in almost half a decade – a sign that volume growth has become an obsession for the German luxury brands, a formula that needs to end, warn auto analysts.
BMW’s problems are actually endemic – Audi and Mercedes-Benz share them. All three have relied on a single business model: build expensive cars that emphasize performance, luxury or both; expand the sales network to encompass more emerging markets; develop new vehicles to cover niches, such as coupe-like sporty offroaders. Back in late 2006 when outgoing BMW chief executive officer Norbert Reithofer took office the core namesake brand only had 18 models across it range – but the tally now stands at 35 and counting as the lineup expanded to reach almost all segments and niches.