Carmaking: Brands to build on

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Carmaking: Brands to build on

Post  Administrator on Wed Aug 10, 2011 9:18 am

At a Frankfurt conference centre last month, Norbert Reithofer, BMW’s chief executive, took the stage to present the i3 and the i8, battery-powered vehicles that offer a vision of the way cars will be produced and driven in coming years. Made from aluminium and carbon fibre-reinforced plastic, they will have an electric driving range of about 140km, and will be networked to their surroundings in the manner of smartphones.

Britain’s Autocar magazine said the two cars, which will be launched in 2013, had “potentially seismic implications for the way we go about our motoring in the future”. Autoblog, a US enthusiasts’ website, said BMW had unveiled nothing less than “a disruptive vision of the future”.
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But at least as remarkable were the announcements that followed a few days later from BMW and its rival German makers of premium cars: trading results that were incongruously stellar amid the three-year-old global economic downturn.

Porsche reported a return on sales for the first half of the year of about 20 per cent, a profit margin just about unheard of in the automotive industry. Daimler’s Mercedes-Benz brand and Volkswagen’s Audi both said they set new sales records in July. BMW itself, the industry’s largest luxury carmaker worldwide by units sold, unveiled record first-half sales of 833,000 vehicles; and, with margins of 14.4 per cent, a second-quarter net profit of €1.8bn ($2.6bn).

Normally cool-headed industry experts have been gushing. “For an analyst that’s covered BMW for 11 years, it’s amazing to see this level of earnings,” says Max Warburton at Bernstein Research. “At no point in the past would it have been imaginable that this company could make margins of this level.”

The Germans are shaking up carmaking, going after competitors in every segment. With products such as BMW’s 1 Series and Minis and Audi’s A1, they are stealing small-car customers from the likes of France’s Peugeot and Citroën and Italy’s Fiat. They are building a lucrative business in China, now the world’s largest car market by volume, where drivers favour some of their most profitable vehicles: big executive saloons such as the Mercedes S-Class and Audi A8, available in special stretch versions for the chauffeur-driven kingpins of the Middle Kingdom.

As the premium producers rack up ever more profits, they will acquire the wherewithal to spend even more on research and development in new products, widening their lead over mass-market rivals. However, the Germans’ counter-cyclical success also offers lessons to other companies seeking to survive and prevail amid a darkening corporate landscape.

Since the downturn began in 2008, they have ruthlessly cut costs while guarding investment and remaining focused on their future products, new markets and their powerful brands. BMW built its forthcoming i cars with an eye on the tough challenges facing its business, including rising oil prices, tightening emissions standards and a rising generation of consumers who are sceptical about the very notion of owning a car. “One thing is for certain – we have kept our eye very clearly on where we needed to be in the future,” says Ian Robertson, BMW’s head of marketing and sales.
Under their shiny exteriors, BMW, Audi, Mercedes and Porsche are tightly run operations. Porsche’s lean production methods, for example, have more in common with the proverbial penny-pinching Swabian Hausfrau than the hedonistic ways of some of its own customers.

It “operates at its capacity limit; its factories are comparatively small and the initial investment is comparatively low”, says Christoph Stürmer, analyst with IHS Global Insight. “The company is simply extremely disciplined in its development and purchasing costs.”

The profits being made in premium cars are not claimed exclusively by Germans. Italy’s Ferrari, owned by Fiat, also reported the best first half in its history. In the UK, Jaguar Land Rover generated the bulk of the $2.1bn net profit Tata Motors, its Indian owner, made last year. In the US, Toyota’s Lexus premium marque holds a large share of the market, although it has failed to replicate this success in Europe or China.

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