BMW – the Bavarian based luxury car producer is seen as one of the most prestigious, stable and admired companies in the world. By 2008 the company sold 1.2 million automobiles under its largest brand – the BMW. In 2001 it very successfully launched the new Mini which is the only brand kept after the failed acquisition of the Rover group with sales rising to over 230 thousand in 2008. In 2003 Rolls Royce was added to BMW’s portfolio and sold 1,212 units in 2008 – an increase of 53% compared to 2004 (BMW Annual Report 2008, pp6-7). The company has not only one of the strongest brands worldwide and exclusively high profit margins of 8 – 10% but since 2007 it has been the world's top seller in the premium class (Hawranek, 2008).
2. Automobiles market in the 2000s
The next chapter will investigate the main trends within the automobile market starting with a general overview, followed by wider analyses of the environment as well as investigation of the competition in the car market.
2.1. General overview
In the 21st century the car industry can be described as mature, highly competitive and very dynamic. Despite being considered as global, automobile industry constitutes of three major areas – USA, Japan and Western Europe which together accounts for 80% of total sales (Lynch, 2006, p698) as well as almost 90% of total output (Donnelly et. al., 2002, 31). New markets, such as China, South America and Eastern Europe are emerging; however, as Lynch points out (2006, p697) the level of wealth differs among the various regions leading to highly varying customer preferences which need to be considered when entering new markets.
As a result of the fierce competition, the structure of the car industry has been changing radically. Extensive consolidation through acquisitions, joint ventures and strategic alliances has been taking place. According to Lencioni (2005), in given circumstances taking into account the BMW’s size and product range the company was at risk of being taken over, however, it successfully managed to expand their product range through internal growth as well as acquisitions.
Increased cooperation could not only be found among car manufacturers but also with their suppliers. Wide-ranging 1st tier outsourcing, including R&D, modularization, and supplier parks were being commonly used in car industry (Jung and Lee, 2006). Furthermore by the 21st century the quality and technology of the cars had risen to similar standards. In addition, companies were increasingly using the same platforms and other components in different models in order to increase profitability. The consequences were that cars produced by different companies looked very similar and the low differentiation led to increased price competition. (Lencioni, 2005). In addition to that, overcapacity had also become a concern within the industry (Oliver and Holweg, 2008). As a result companies were lowering prices as well as offering incentives which, however, had negative influence on the profitability of the whole industry. At the same time it stimulated a shift of competitive advantage to product design, marketing and brand-building (Lencioni, 2005). This was also true for the premium segment with new entrants and models coming in, particularly from the Japanese companies.
In the meantime the product variety and customer service had also increased. An investigation by ISDP identified that the sales of cars with exact specification had increased from 31% in 1992 to 78 % in 2002 while build-to-order car sales rose from 10% to 43% and the service level (in the dealer perception) increased from 80% to 95%. (Turner and Williams, 2005). A wider variety and increasingly heterogeneous market have in turn implications on car manufacturer’s organisation and technology. Assembly plants have become smaller, more flexible and new methods, like lean management, just-in-time (JIT), kanban and others have been introduced (Morris et. al., 2004).
2.2. Environmental analysis
For the company to be successful, it is crucial to analyse the wider environment carefully in order to anticipate changes and be proactive. The concept of PESTEL will be employed to analyse the different but overlapping and interrelated areas (Johnson et. al., 2008, pp54-57).
The ‘green agenda’, including such issues as pollution, waste, climate change and resource deficit, has become an important topic in the 21st century. Given that the road transport contributes 20% to the EU's CO2 emissions while passenger cars account for approximately 12% (EU Press release, 2007) there is a general concern about the future of the car industry. The producers of large, premium automobiles such as BMW that very often are very fuel-consuming are seriously affected, particularly in the long-term.
With the car being highly sensitive to price and consumer income, the car industry is very vulnerable to economic changes (Akpinar, 2007, p175). The global economic downturn in the beginning of 21st century led to lowering demand for cars, however, as Hawranek (2008) argues that premium cars are usually not as much affected as mass-market. In fact, BMW’s performance was quite remarkable. (Lencioni, 2005). However, it has proven not to be the case in the most recent recession where the luxury car makers, particularly Mercedes-Benz and BMW have been hit hardest with BMW sales declining by 18% (Hawranek, 2009). Additionally increasing fuel prices have major implications on car manufacturers (Lynch, 2006, p701). Firstly the car makers, especially the luxury ones, will be pressurized to build more fuel-efficient cars. Secondly the demand is shifting towards smaller sized cars (Thanasuta et. al., 2009, p. 358), which has led BMW to introduce the Series 1 models.
Finally the car makers are influenced by the currency changes (Lencioni, 2005). The strong rise of Euro and the week Dollar have both had negative impact on many manufactures, particularly BMW as it still mostly produces its cars in Germany.
Political and legal issues
There are governmental regulations that affect most manufacturers, including car makers, such as health and safety, employment laws etc. Additionally different tax levels are imposed depending on vehicle efficiency (Thanasuta et. al., 2009, p358). Emission reduction regulations have also had major influence on manufacturers to produce environmentally-friendlier cars as well as develop new alternative technologies (Pilkington and Dyerson, 2006, pp81-87). Recent development even foresees fines for car manufacturers if their models exceed a certain level of CO2 emissions ( Curry, 2007).
Further developments, such as congestion charges on vehicles (with exception of the hybrids) in the city, for instance in London, or subsidising electric vehicles are all affecting the future strategies of the car manufacturers (Ewing, 2008).