BMW SWOT Analysis

In this essay I will present a SWOT analysis of one of the largest carmakers, BMW, and identify
the capabilities that they have, which will enable them to sustain a competitive advantage in
automobile industry. First there is introduction of general view of the automobile industry to
explain the complexity of it, and after that a BMW analysis.
Automobile Industry
In the period from 1990 to 2001 automobile industry has undergone major changes.
Consolidation was moving forward very rapidly and almost 69% of the automobile market was
owned by six international giant companies.
European market specifically faced a furious competition, the high technological advancement
and the level of quality achieved by most manufacturers radically decreased the opportunity for
product differentiation. Also, huge increase in productivity happened due to consolidation. These
factors made price competition the prime strategy for. Customers, environmental constraints and
petrol prices also helped in creating this insensitive environment and obliged many companies,
mainly midsized players like BMW, to rethink their business strategy in order to survive.
BMW overview
Bayerische Motoren Werke Group (BMW) is one of the worlds leading luxury carmakers.
Founded and based in the Germany, BMW employs 820,000 workers in plants in Germany
U.S.A and South Africa. In 1959 Herbert Quandt bought BMW, when the company was in
financial difficulties, now they own 46% of the BMW shares.
The powerful reliable performance and their luxurious design made BMW The ultimate driving
machine. Until 1990 BMW strategy was to focus on the high performance of its products. Later
the high competition and the rapid development of its competitors forced BMW to think of
expanding its range of products, to join the ranks of the auto industry super power. In 1994, the
German carmaker BMW bought Rover from British Aerospace. The strategic thinking was that
the acquisition would allow obtaining significant economies of scale. However, things did not go
according to plans after and BMW sold Rover in 2000.
Internal and External Environment, BMW perspective
Long term survival is the result of an organization ability to adapt to the forces and influences
exerted on it by the external environment. In responding to these forces companies formulate
strategies to cope with competition, maintain or increase its market share and retain their
profitability.

Two major strategic decisions were undertaken by BMW to deal with the external environment,
the first is the acquisition of Rover, the second came out after the failure of the Rover venture.

SWOT ANALYSIS
SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. It involves specifying
the objective of the business venture or project and identifying the internal and external factors
that are favorable and unfavorable to achieve that objective.
STRENGTHS
Reputation
BMW has a reputation for luxury and refined quality. The BMW brand relates well to the
domestic owner reinforced by BMW's reputation for quality, reliability and their dealers
attention to service. Respected as the ultimate driving machines and leading the field in a whole
host of classes, BMW are constantly innovating in their quest to stay ahead of their competitors.
Engineering History
BMW is not only a carmaker; they are one of the world leaders in motorcycle production, aircraft
engines, in addition to marine engines. BMW has a long history of providing the best
engineering possible in the market.
Facilities
BMWs factories are considered the most flexible and most productive in Germany; its suppliers
are the industries best; and the workforce among the industrys most talented.
Strong Financial Position
Despite a 53 percent increase in research and development and a 75 percent increase in capital
expenditures over the past two years, BMWs net profit for 2003 rose 8.3 percent to 1.26
billion, while revenues increased by 9.9 percent, to 26.4 billion. Operating margins, at 8 percent
in 2002 and 8.7 percent in 2001 were among the highest in the industry.
Shared components
BMW is able to keep overall costs down by using shared components across its similar-sized
cars. For example, the 5 Series shares components with the X5 and the 6 Series, and the 3 Series
shares with the X3, and the 1 Series.
Continuous Improvement
BMW identified the need for improved quality and customer care. BMW now offers a four-year

warranty, including maintenance and service, in the price of the car, cutting out complaints that
occasional technological glitches made the brand extremely expensive to maintain.
WEAKNESSES
BMW roll out a new or updated model nearly every three months through 2005 may shift
emphasis on getting a new model to market rather than focusing on issues that may develop with
existing models, issues such as software, and mechanical problems.
Manufacturing costs
Compared with other volume producers, BMWs manufacturing costs are much higher, its
product development process more costly, and its purchasing costs are higher because its
suppliers are the industrys best; and the workforce among the industrys most talented which is
stated as one of BMWs strengths, but can be a weakness as having the best and most talented
does not come cheap.
Relying on 1 Series
BMW is relying too heavily on one model, the 1 Series to maintain its high margin. They are also
realizing profits due to the strong sales of the loaded models of the Mini, but need to expand.
Shared components
Although this can also be identified as strength it can also be a true weakness. If cars are using
shared components or if they are too similar, it could lead to loss of sales of higher priced
models, in BMWs case the 3 Series.
THREATS:
The following threats are realized in the BMW Automobile case:
Merger threat: Merger activities have generated a 138.7bn in 857 deals between 1998 & 2000.
Ex. the GM acquisition of 20% of Fiat automobile division, Daimler Chrysler acquired
Mitsubishi of Japan. These actions set examples of how major manufacturers are trying to
survive in the mass market through mergers and acquisitions. Larger automobile companies can
survive the long term because they are able to produce the industry threshold of 2 million units a
year. Smaller automakers like BMW may not be able to last through the long haul turning them
into a takeover target.
Competitors: One of the biggest threats that BMW realized was the increasing number of
competitors that are now directly competing with it in its market segments namely executive
and luxury. Volkswagen produced models which competed, with BMW in the executive saloon
segment. At the luxury end, Daimler-Chryslers Mercedes brand competed with BMW 7-series.
Toyota directly targeted BMW through introducing their luxurious Lexus model. With its low
cost, high performance and quality Toyota was able to compete with BMW at most of its market
segments.

OPPORTUNITIES:
An opportunity is a favorable situation for the company. Through analysis of the external
environment several opportunities were detected by BMW that led to their decision of
acquisition of Rover, and also shaped the strategy they decided to follow after that acquisition.
Economy of scale: Rover is a midsized company almost similar to BMW in terms of unit
volume, so through the acquisition of Rover BMW will be able to increase its economy of scale
and protect its independence.
Market segment: Through the acquisition of Rover BMW will be able to increase its market
share and cover a wider market segments. Rover was competing with BMW in its segments plus
it produces cars in segments that BMW was planning to enter. Thus the opportunity in acquiring
Rover from BMW perspective was quite beneficial.
Expansion: BMW geographical expansion and the profits it is gaining in markets other than the
European market such as USA, where BMW sales outsold that of its main competitors, will
create opportunities for the company to find new ways of expanding using their own products.

Conclusion
BMW has earned a reputation for high quality engineering and product development. BMW has
become the envy of most of the auto making industry with impressive sales and earnings
improvements in the face of generally tough world car industry conditions.
The Rover venture loss has benefited BMW. It highlighted the true competitive advantage BMW
have that will enable them to compete not only in luxury segment but in any market segment
they might choose to enter. In the near-term the future remains bright for BMW with sales and
profits continuing to outperform competitors. The longer-term future, however, contains some
significant challenges.