Spotlight on BMW’s sales crown as profits skid

FOR YEARS, record sales of highperformance sports cars meant big profits at BMW that could fund incentives and investment in technology to meet the EU’s fuel efficiency rules.

But sales of competitors such as Audi have caught up and profits are shrinking. With BMW’s final fourth-quarter earnings out today, some in the industry are wondering if the old “sales grow, profits look after themselves” formula no longer works.

Preliminary results show that margins at BMW’s car division have fallen to their lowest in nearly five years, the latest sign that the sales crown title it has successfully defended for almost a decade is increasingly costly.

“There is an obsession with volume growth in the German premium segment and it needs to come to an end, otherwise it becomes a negative spiral of discounting, eroding the brand equity,” said Arndt Ellinghorst, the head of automotive research at Evercore ISI.

But BMW’s conundrum is shared by Mercedes and Audi. All have relied on a similar formula for growth: building cars which emphasise performance while expanding their sales footprint into emerging markets and developing new vehicles, such as the sporty off-roader.

When Norbert Reithofer became chief executive of BMW in September 2006, it only sold 18 BMW-branded sports cars, today there are 35 as the company has expanded its range to boost sales and capture different parts of the car market.

Some managers agree with the analysts. BMW’s board member for MINI Peter Schwarzenbauer told Reuters late last year: “The car industry has become too focused on volume sales.” – Reuters