BMW using heavy incentives to sell vehicles

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Thread: BMW using heavy incentives to sell vehicles

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    BMW using heavy incentives to sell vehicles



    BMW lauds sales prospects, but investors worry about U.S. incentives

    GENEVA, Switzerland -- German luxury car maker BMW used its 15 minutes with the media at the international car show here, to point out its increased sales target for 2007, and take credit for its attempts to improve fuel efficiency with high tech solutions.

    Unfortunately, investors are not seeing the company in such a favourable light, and are fretting about its prospects in the U.S., where sales seem to be under pressure.

    Investment banker Dresdner Kleinwort said BMW incentives in the U.S. are causing concern.

    "BMW's discounting practice in the U.S. leaves us speechless. Since May 2006, BMW has offered structurally higher incentives compared to its peers and there appears to be no light at the end of the tunnel," Frankfurt, Germany-based Dresdner Kleinwort said in a report.

    "Incentives stand at an average of $4,125 per vehicle, which is about 60 percent higher compared to Mercedes ($2,573) and Audi ($2,607). Most of these discounts are related to BMW's active move into competitive lease deals," the report said.

    BMW achieved record global sales in 2006 of 1.37 million vehicles and expects to beat that again in 2007 with more than 1.4 million BMWs, Minis and Rolls Royces sold.

    Morgan Stanley said BMW can expect tougher competition from Porsche and Audi, and agreed that it is being forced to increase incentives to sell its cars in America, and faces a massive challenge from new emissions regulations.

    Morgan Stanley cut its rating on BMW shares to "underweight" from "overweight," and recommended investors buy DaimlerChrysler or VW shares instead.

    It also suggested that BMW may have to seek an alliance partner to shore up its future.

    "We believe BMW may be in the early chapters of a restructuring story - are investors prepared for this? Looking longer term, we believe BMW management (and the Quandt family) must consider a strategic alliance with another automotive partner to surmount the challenges of scale economies, geographic diversification and share access to new power-train technologies and emission solutions," said Morgan.

    Morgan cut its BMW earnings forecasts by 5 to 6 percent for 2007 and 2008, mainly because of higher incentives in the U.S. and the weak dollar.

    Longer term threats include the introduction of the Porsche Panamera in 2009, while Lexus and Nissan's Infiniti are gearing up for a sales push in Europe.

    At today's press conference in Geneva, BMW board chairman Norbert Reithofer said the company is making important progress using technology to improve fuel economy. The bottom of the range 1-series and the 5-Series will soon have regenerative braking, which conserves energy when the car is being braked, or is freewheeling. These cars will also include so-called "stop-start" systems, which automatically switch off the engine when the car is stationary, and reignite it when the accelerator is pressed.

    But Dresdner Kleinwort is not impressed.

    "Even discounts on the new X5 (large SUV) are back at $4,490. The 7 Series is supported with $11,345 (Mercedes S class $3,711). Against this diluted pricing level, a 15 percent increase in February unit sales (in the U.S.) is meaningless in our view
    http://www.detnews.com/apps/pbcs.dll...51/1148/AUTO01

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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    Wow, that is crazy.

    I guess we can expect BMW's prices to come down in the future?

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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    Strange... I found this contradition on the news today. It seems that BMW shined in 2006 according to follwing article...

    "BMW 2006 earnings jump"

    http://news.yahoo.com/s/nm/20070308/...bmw_results_dc

    Market analysis spin doctors
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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    Wow, BWM out-spends all 2 1/2 domestic manufacturers when it comes to incentives. They are even beating out DCX!

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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    Quote Originally Posted by Mags
    They also have a vehicle lineup that costs more than 3/4 of most of the offerings available from the domestic manufacturers.

    A 10k incentive on a 100k vehicle isn't good when compared to 3k on a 100k vehicle from MB, but it's still only 10%.

    MF
    Yes, I suppose you are right. Being as that I never had to shop for a luxury vehicle, I just always assumed that there were little or no rebates on them because of supply/demand.

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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    Quote Originally Posted by neshapop
    Strange... I found this contradition on the news today. It seems that BMW shined in 2006 according to follwing article...

    "BMW 2006 earnings jump"

    http://news.yahoo.com/s/nm/20070308/...bmw_results_dc

    Market analysis spin doctors
    </IMG>
    Read a little closer:

    Group earnings before tax rose by a quarter to 4.124 billion euros ($5.4 billion), including a 372 million-euro gain from selling shares in UK aero-engine maker Rolls-Royce (RR.L), in line with the average estimate in a Reuters poll of 19 analysts.
    ...
    Revenues advanced 5 percent to 48.9 billion thanks to strong sales volume and growth in the financial services unit, it said.
    Selling assets and relying on interest payments fro subsidized leases. Not a good sign.

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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    So it looks like they need a partner to share costs and Mercedes is looking for a partner for Chrysler....

    Hmmm...how weird would that be having Chrysler joint owned by BMW and Mercedes as a co developed strategy? Im sure BMW could learn a little from Mercedes or vise versa...

    GM is currently looking at Chrysler to work in a partnership - BUT wasn't GM already working with BMW (as well as main partner Suzuki) on fuel cells? Couldn't GM extend the partnership beyond FCV's with BMW and both could benefit?

    The auto market is getting interestng..........

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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    BMW Group posts record earnings for 2006

    Profit before tax up by 25.5% to euro 4,124 million+++ Net profit improved by 28.4% to euro 2,874 million+++ Dividend on common stock to be raised by 9.4%+++


    The profit before tax increased by 25.5% to euro 4,124 million (2005: euro 3,287 million). This includes a one-off gain of euro 372 million arising on the par-tial settlement of an exchangeable bond on shares in the British aero engine manufacturer, Rolls-Royce plc. At an operating level (i.e. excluding the excep-tional gain on the bond), the pre-tax profit improved by 3.0%.

    The net profit climbed by 28.4% to reach a new all-time high level of euro 2,874 million (2005: euro 2,239 million). Earnings per share rose to euro 4.38 (2005: euro 3.33) per share of common stock and to euro 4.40 (2005: euro 3.35) per share of preferred stock. Group revenues increased by 5.0% to euro 48,999 million (2005: euro 46,656 million) on the back of a strong sales volume performance and continued strong growth in the financial services business. The pre-tax return on sales at a group level rose to 8.4% (2005: 7.0).


    SOURCE

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    Re: BMW using heavy incentives to sell vehicles; Investors unimpressed

    I'm not sure this is news...except for 3-series/C-Class, M-B traditionally has outsold BMW in their respective competitive segments by a fairly wide margin (E-Class > 5 series, S-Class > 7 Series). Moreover, the 7 is at the end of its life cycle while the S-Class is just starting out. If I were DCX I'd be concerned that there are incentives on the S-Class at all at this point.

    I'm not seeing how one could extrapolate solely from North American 7-Series and X5 incentives the need for a merger, and I'd be ecstatic to hear a report like this from either Ford or GM.
    Last edited by Ach; 03-08-2007 at 11:59 AM.
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    Re: BMW using heavy incentives to sell vehicles

    Holy light, 11K on the hood of a 7-series?! How the mighty have fallen.

    I guess BMW is going head to head with the Dodge Ram.

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    Re: BMW using heavy incentives to sell vehicles

    I begin to ponder if the "BMW bubble" might blow sooner then we taught?

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    Re: BMW using heavy incentives to sell vehicles

    Quote Originally Posted by FordFan
    Holy light, 11K on the hood of a 7-series?! How the mighty have fallen.

    I guess BMW is going head to head with the Dodge Ram.
    Nah, not really. You have to consider a few things here:

    -7-series sell in the neighbourhood of $100k, so $11k in incentives is no worse than $2200 on a $20k car. Considering the high profit margins for these cars, it's even better.

    -The 7 is near the end of its model cycle while the key competitors just launched new models.

    -It's not money on the hood. Most of their incentive spending comes from subsidized lease deals and dealer incentives.



    I'm sure they'd rather sell the cars at MSRP, but the sky is not falling.

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