• Dec 18th 2007 at 8:33AM
  • 15
BMW's running full-bore as it strains to double its profit margin within the next five years. Across all 23 of the company's manufacturing locations, capacity is maxed out at 100-percent, and there's nary an extra Roundel badge to be had. As BMW pushes for a 10-percent profit margin, they're also putting the squeeze on suppliers. To the OEMs, it seems that BMW has shifted its focus from quality and innovative technology to the bottom line. Not helping matters was a public statement by Manfred Scoch, deputy chairman of BMW's supervisory board, criticizing their suppliers for having better profits than the automaker. With their focus on building the Ultimate Driving Machine, BMW has enjoyed a reputation as a favorite customer of automotive suppliers. Scoch's lead balloon didn't go over well with the companies that make parts for BMW, and has stirred further rumblings that there's growing dissatisfaction with BMW's apparent focus shift. Suppliers shot back at BMW, expressing alarm at Scoch's statement and stating that their ability to generate a profit is tied to their innovation and hard work, rather than overcharging BMW. Understandably, suppliers are loath to concede any price breaks on agreements that are already in place.
For its part, BMW's decided that it's more cost effective to increase their ability to make some components in-house. With that in mind, the Leipzig and Regensburg stamping plants are undergoing expansion, and there will be a new Leipzig stamping facility in 2009. At least 200m euros will be invested in Leipzig and Regensburg, but BMW believes it's a better idea to invest its capabilities, rather than pay a supplier to sort it all out. By the time it's all said and done, further integration may happen to keep the slices on the pie chart looking healthy. If they keep ticking off the companies that make the pieces that they bolt together into automobiles, BMW may end up doing it all themselves.

[Source: Automotive News - Sub. Req.]

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    • 1 Second Ago
      • 7 Years Ago
      --- CAN'T MAKE ENOUGH, EH???? __ I just don't understand why the stupid public buys and enjoys so many of these cars whose looks the auto writers love to criticize. People are so stupid that BMW tends to outsell Mercedes in the US, with a narrower model line.
      (Or maybe the styling is right for the actual customers, who don't give a fig about the "Bangle butt" remarks, and average many years younger than the Merc buyers.)
      • 7 Years Ago
      Ha, all they need to do now is employ somebody from GM/Ford to really show them how to drive down the bottom line.
      • 7 Years Ago
      I think it's hilarious. Just when GM is coming around to doin business mostly right, these "upstarts" - from Toyota to BMW to VW are going about making the same mistakes as the US big 3. Since I'm no fan of snob appeal, it'll be fun to watch BMW suffer.
      • 7 Years Ago
      Actually, they aren't making money hand over fist. Last time I checked their financials on google, they were clearing about 5% net profit. That's pathetic. In the finance world, a company that makes 5% profit margin is either poorly managed, or in a commodity business, either way it's an investment you avoid.

      As much as I like BMW's they are really a commodity. I checked out Audi, and MB and they were also hovering around 5%. So get that. So it's kind of comic to participate and read people defend their own luxury German brands, when they are all commodities!!

      Except one.

      I was able to check out Porsche's financials: 20% profit margin. Now, I'm not clear about Germany's accounting rules, and how the fact that Porsche and Audi are under one big umbrella, but if 20% is true. It means, from a financial world, and an investor's perpective, that of all German brands, Porsche is definitely has a brand moat, and isn't anywhere near being a commodity.

      Porsche, there really is no (other German) substitute product.

      • 7 Years Ago
      BMW is also irritating Canadian customers. In general we're being gouged by the Canadian auto makers when you compare prices with the US. BMW is resorting to desperate tactics to prevent free trade as they erect ridiculous barriers to Canadians importing cars to Canada.

      BMW now charges $350 to determine if your car is admissable into Canada (2 weeks ago it was posted on the RIV website for free, and for every other automaker it is posted for free), and charges $500 to determine if your car has safety recalls outstanding (i have no idea how they can charge for something that is a matter of safety, yet again they are the only one doing this), and approximately $2000 to change your instrument cluster for daytime running lights (can be done for $150 at Cdn Tire but must now be done at BMW).

      There is a serious backlash brewing among current and prospective BMW enthusiasts who like me would rather look at Infiniti or Lexus now.
      • 7 Years Ago
      This is potentially a slippery slope for BMW. It wasn't that long ago (up to the late 80s and into the first years of the 90s) that Mercedes was, to steal an ad slogan from Cadillac, the "Standard of the World." There was no better super-luxury sedan than a 560SEL.

      However, it was also in the late 80s that BMW started to become a serious competitor to Mercedes in the U.S. (by sales volume), followed shortly thereafter by Infinity and Lexus. What followed was a notable, dramatic downturn in the quality of Mercedes' lineup, starting in earnest in 1994 with the introduction of the W202 chassis C-Class, followed by the W210 chassis E-Class in 1997 and the W220 S-Class in 2000.

      This trend is one that Mercedes *may* be recovering from now with their latest model refresh (W211 E-Class, W219 CLS, W221 S-Class, etc.), but most of these models are still too new to tell for sure.

      But getting back to the point, this decrease in quality was/is due in large part, in my opinion to Mercedes allowing the bean counters and the marketing department to take the reigns of the company, pushing more models (ML, B, R, etc. anyone?) out the door while trying to minimize engineering & development and production costs.

      It appears that BMW may be headed down that same road now, which is very disappointing, because for the past 10-15 years or so, their quality has been distinctly better than Mercedes', based on what I see at work (I work for a repair shop specializing primarily in Mercedes, BMW, VW and Audi).
      • 7 Years Ago
      Aggressive expansion and growth with a focus on the botttom line will take BMW down the road that Toyota is on right now... Quality suffers.
        • 7 Years Ago
        BMW, good as they are at making products that perform well, isn't close to the level that Toyota operates at. And as much as people really want to believe Toyota has jumped the shark, they're still, according to all empirical evidence, still doing quite well.

        Yes, they've had recalls. Until I see a few years of consistently poor reliability (and, right now, they've only had two models with problems). BMW _wishes_ they had Toyota's--let alone Lexus'--level of reliability, even if Toyota has slipped very slightly.

        Now, that being said, aggressive cost cutting in general (and supplier squeezing in particular) is never a good thing, regardless of the brand. It hurt the domestics when they did it (from, oh, 1975 to 2002), it bagged Toyota and Honda in the late 90s, it _really_ hurt Nissan when Ghosn came in swinging the axe and, sure enough, it'll hurt BMW. Which is a pity, as they're finally starting to make a reasonably reliable product.

        If you cut dollars from suppliers, they'll find a way to cut quality and you will pay for it later, either in terms of warranty claims or sales drops. If you really want to cut cost, simplfy your production (fewer models, more shared parts), eliminate waste and reduce warranty claims. Don't try to get blood from a stone.

        I think it's ironic that while Ford is just learning the boon that a drop in warranty claims brings and GM is reaping the benefits of reducing it's model line-up and refocusing its offers that the Germans seem hell-bent on making the same mistakes the Americans made in the last quarter-century.
        • 7 Years Ago
        I love how people play the quality game with BMW without realizing that they are only really a bit above the rest of the German manufacturers. Folks, there are whole TIERS of car makers above them.

        to borrow a Mercedes-Benz phrase:

        "Perception is not always reality"

      • 7 Years Ago
      Damn, damn, damn!

      BMW is concerned with "profit margin," and not simply "profit"? The company is making money hand over fist and to try to squeeze suppliers is the road to ruin. I love the company's products but let's be real -- they'll suffer greatly if they begin squeezing suppliers.

      Just be happy to count the billions you're making now BMW, and not some metric on an accountant's spreadsheet.
      • 7 Years Ago
      Yep, sounds like he's reading from the Detroit 3 Playbook. Unfortunately, the auto industry is a whore's business these days, so no matter how many suppliers you alienate, there'll always be others willing to play the game.
      • 7 Years Ago
      Makes me think of my Saab. The car has a super cool design, and if it were made with good quality through out, I wouldn't have a bunch of cool features that don't work/broken.
      • 7 Years Ago
      From 1 series to all these crossovers, BMW is really jumping the shark. Still, there's a lot of money to be made selling out. I'll just cross them off my shopping list along with their other brethren (Merc, Audi and there's no way I can afford a 911). I'm hearing good things about Cadillacs these days...
      • 7 Years Ago
      In full disclosure, I own a 330i so I might be a little biased.

      The BMW products are a kick in the pants and I can understand why they consistently make the Top 10 "whatever" lists. Nothing else out there performs like a BMW, in the same price range.

      That being said, they are very proud of their vehicles. Too proud. I was told to get rid of it before the warranty expired. I didn't listen and I'm paying out the ass for it now. They may make engines that will do > 200k miles, but by the time you hit 100k you've bought a whole new car around the engine. I hope BMW fixes their reliability problems before they experience the backlash the US automakers have seen. If this means bringing parts in-house, so be it.
        • 7 Years Ago
        They're practically in their own price range; BMWs have gotten ridiculously expensive compared to the competition. Like you said, I would probably never purchase one if I would have to use it beyond its warranty.
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