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Bayerische Motoren Werke (BMW) Groupe – 2013

Forest R. David

A. Case Abstract

Headquartered in Munich, Bavaria, Germany, BMW is a large automobile, motorcycle and engine
manufacturing company founded in 1917. BMW is the parent company of Rolls-Royce Motor Cars.
With about 100,000 employees, BMW produces motorcycles under the Motorrad and Husqvarna
brands and sponsored the 2012 Olympics in London. Financial services bolster BMW's bottom line,
including purchase financing and leasing, asset management, dealer financing, and corporate fleets.
About 3,000 dealers worldwide sell BMWs, including the Mini, the 3, 4, 5, and 6 Series.

In September 2013, Mercedes-Benz gained ground against both BMW and Audi AG as the
introduction of the Mercedes CLA coupe helped demand almost double for the company’s compact
models. Sales by Mercedes, owned by Stuttgart, Germany-based Daimler AG, rose 16 percent from
their September 2012 number to 143,000 cars and sport-utility vehicles. The 16 percent number was
higher than BMW’s 7.6 percent increase and Volkswagen’s Audi’s 10 percent increase in September
2013. BMW, Audi and Mercedes are all seeking to attract buyers with new vehicles such as the CLA,
the BMW 4-Series coupe and the sedan version of Audi’s A3 compact. Audi and Mercedes have plans
to overtake BMW as the world’s biggest luxury-car seller by the end of the decade. With such fierce,
determined rivals, BMW needs a clear strategic plan going forward.

B. Vision Statement (proposed)


To be renowned as the top quality automobile and motorcycle company in the world.

C. Mission Statement (proposed)


We strive to be the most successful automobile manufacturer (2) in the world (3) by providing
premium products and services to people and businesses (1). We manufacture products in sustainable
facilities (8), using the latest technology (4), and offer exceptional benefits and growth opportunities to
our employees (9). Our philosophy is to uphold the highest ethical standards (6) while maintaining
strong fiscal stability (5) and a commitment to excellence (7).

1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit
Opportunities

1. Growth in sales of luxury vehicles exceeds growth in all other automobile categories.
2. Formula One, NASCAR, Indy Racing, and other racing organizations are outstanding ways to
promote products.
3. Growing middle and upper class in China, India, Eastern Europe and Latin America.
4. Financially well to do people are less effected by down turns in the economy than middle and
lower class families.
5. Growing desire for hybrid style cars among customers.
6. BMW head of sales and marketing recently said “We are confident of healthy sales growth
especially in Asia and the Americas.”
7. Ford and GM saw sales drop by around 10% in Europe.
8. Growing demand for diesel engines and trucks in China and other developing markets.
9. Ford and GM continue to struggle in the USA and international markets.
10. Germans take a sense of pride in their subject matter and want to be as well prepared as possible,
so they can contribute and make key points during the meeting. In general, the German worker is
well skilled.

Threats

1. Volkswagen (VW) is the largest car manufacturer in Germany and aims to double its USA market
share from 2% to 4% by 2014, and aims to be the world's largest carmaker by 2018.
2. VW introduced diesel-electric hybrid versions of its most popular models in 2012, including the
Jetta, followed by the Golf Hybrid and the Passat. VW owns Porsche.
3. Mercedes-Benz is active in three forms of motorsport racing: Formula Three, DTM, and Formula
One. The parent, Daimler AG, holds a 60 percent stake in Formula One team Mercedes-Benz
Grand Prix
4. Mercedes-Benz’s U.S. sales surged 11% in January 2013, in its effort to overtake BMW in luxury-
auto deliveries for all of 2013.
5. Lexus sales (owned by Toyota), were up 23% in the USA in 2012 through November, and are
expected to gain at least 10% in 2013.
6. Audi designs, engineers, manufactures and markets automobiles and motorcycles and competes
heavily with BMW on luxury cars.
7. Rising gas prices and pressure to produce more fuel-efficient automobiles and growing concern
over emissions and pollution.
8. Public transportation is fairly common in much of Europe and large cities in the USA.
9. “Looking ahead, we expect the headwinds in Europe to remain,” said Ian Robertson, BMW’s head
of sales and marketing.
Competitive Profile Matrix

BMW Daimler Ford


Critical Success Factors Weight Rating Score Rating Score Rating Score
ROE 0.15 2 0.30 3 0.45 4 0.60
Market Penetration 0.11 2 0.22 3 0.33 4 0.44
Customer Service 0.07 4 0.28 3 0.21 2 0.14
Product Quality 0.07 4 0.28 3 0.21 2 0.14
Inventory Turnover 0.07 1 0.07 2 0.14 4 0.28
Employee Dedication 0.07 3 0.21 2 0.14 1 0.07
Financial Profit 0.15 3 0.45 4 0.60 2 0.30
Customer Loyalty 0.10 3 0.30 2 0.20 4 0.40
Market Share 0.10 2 0.20 3 0.30 4 0.40
Price Competitiveness 0.08 2 0.16 3 0.24 4 0.32
Motorcycles 0.03 4 0.12 2 0.06 1 0.03
Totals 1.00 2.59 2.88 3.12

All three firms above are top rivals in the auto industry. BMW lags on ROE and inventory turnover.

EFE Matrix

Opportunities Weight Rating Weighted Score


1. Growth in sales of luxury vehicles exceeds growth in all other 0.10 4 0.40
automobile categories.
2. Formula One, NASCAR, Indy Racing and other racing 0.04 3 0.12
organizations are outstanding ways to promote products.
3. Growing middle and upper class in China, India, Eastern Europe 0.05 4 0.20
and Latin America.
4. Financially well to do people are less effected by down turns in 0.05 4 0.20
the economy than middle and lower class families.
5. Growing desire for hybrid style cars among customers. 0.03 2 0.06
6. BMW head of sales and marketing recently said “We are 0.07 3 0.21
confident of healthy sales growth especially in Asia and the
Americas.”
7. Ford and GM saw sales drop by around 10% in Europe. 0.07 4 0.28
8. Growing demand for diesel engines and trucks in China and 0.05 2 0.10
other developing markets.
9. Ford and GM continue to struggle in the USA and international 0.08 3 0.24
markets.
10. Germans take a sense of pride in their subject matter and want to 0.04 3 0.12
be as well prepared as possible, so they can contribute and make
key points during the meeting. In general, the German worker is
well skilled.
Threats Weight Rating Weighted Score
1. Volkswagen (VW) is the largest car manufacturer in Germany 0.06 3 0.18
2. VW introduced diesel-electric hybrid versions of its most
popular models in 2012, including the Jetta, followed by the Golf 0.03 2 0.06
Hybrid and the Passat. VW owns Porsche.
3. Mercedes-Benz is active in three forms of motorsport racing:
Formula Three, DTM, and Formula One. The parent, Daimler 0.04 3 0.12
AG, holds a 60 percent stake in Formula One team Mercedes-
4. Mercedes-Benz’s U.S. sales surged 11% in January 2013, in its
0.06 3 0.18
effort to overtake BMW in luxury-auto deliveries for all of 2013.
5. Lexus sales (owned by Toyota), were up 23% in the USA in 2012
through November, and are expected to gain at least 10% in 0.05 3 0.15
2013.
6. Audi designs, engineers, manufactures and markets automobiles
and motorcycles and competes heavily with BMW on luxury 0.07 3 0.21
cars.
7. Rising gas prices and pressure to produce more fuel-efficient
0.02 4 0.08
automobiles and growing concern over emissions and pollution.
8. Public transportation is fairly common in much of Europe and
0.03 2 0.06
large cities in the USA.
9. “Looking ahead, we expect the headwinds in Europe to remain,”
0.06 3 0.18
said Ian Robertson, BMW’s head of sales and marketing.
TOTALS 1.00 3.15

BMW is performing very well across the board on all external issues with a score of 3.15.

E. Internal Audit
Strengths

1. In June 2012, BMW was listed in Forbes magazine as the #1 most reputable company in the world.
2. BMW owns and produces the Mini marque, and is the parent company of Rolls-Royce Motor Cars and
produces motorcycles under the Motorrad and Husqvarna brands, led by the K 1200 GT, R 1200 RT,
and F 800 S models,.
3. BMW Group operates 29 production and assembly facilities in 14 countries and has a global dealer
network in more than 140 countries.
4. BMW's premium lineup includes sedans, coupés, convertibles, and sport wagons in the 1, 3, 5, 6, and 7
Series, as well as the M3 coupe and convertible, the X5 sport active, and the Z4 roadster.
5. In calendar 2012, BMW Group sold 1.85 million cars and nearly 117,000 motorcycles worldwide, the
highest annual total ever for the company and an increase of 10.6% over the previous record year in
2011.
6. Success was led by the highly successful BMW 1 Series, with a total of 226,829 vehicles sold in 2012,
an increase of 28.6% over the previous year. The BMW X1 also did very well in 2012 with a total of
147,776 vehicles sold, up 16.9% over the prior year. The BMW 3 Series Sedan did best though with
294,039 vehicles delivered, an increase of 22.4% over 2011.
7. In early 2013, BMW Group and Toyota Motor Corp. extended their long-term collaboration agreement
for the joint development of a fuel cell system, joint development of architecture and components for a
sports vehicle, joint research and development of lightweight technologies, and collaborative research
on lithium-air batteries with a post-lithium-battery solution.
8. China led all nations with 30,000 BMW vehicles sold in 2012, 50% higher than the 20,000 sold in the
USA.
9. “BMW Genius Everywhere” program will began in the USA in late 2013, with a full launch by early
2014, which is when the new BMW i3 electric car is due to go on sale.
10. Total revenue increased 13% in 2012.

Weaknesses

1. BMW only sold 2,311 units in Russia in 2012.


2. Over 50% of all motorcycle sales come from Europe.
3. Note that BMW is the smallest firm (between Daimler, Toyota, GM, Nissan, and Volkswagen) in
terms of # of employees, but has the second highest EPS.
4. USA only accounts for 18% of all BMW automobile sold.
5. USA only accounts for 10% of all BMW motorcycle units sold.
6. No meaningful sales are derived from developing countries on motorcycles.
7. Inventory turnover of 5 vs the industry average of 10.
8. Quick ratio of 0.66 vs an industry average of 1.0.
9. Debt-to-equity of 1.24 vs an industry average of 0.70.
10. Only uses premium gas, and cost of repairs can be higher than normal.

Financial Ratio Analysis

Profit Margin Percent BMW Industry


Gross Margin 19.98 16.37
Pre-Tax Margin 10.2 4.13
Net Profit Margin 6.76 4.82

Liquidity Ratios
Debt/Equity Ratio 1.26 0.72
Current Ratio 1.08 1.25
Quick Ratio 0.66 0.98

Profitability Ratios
Return On Equity 17.28 10.99
Return On Assets 3.96 3.44
Return On Capital 6.4 4.93

Efficiency Ratios
Income/Employee 48,376 31,652
Revenue/Employee 715,364 730,037
Receivable Turnover 34.8 3.24
Inventory Turnover 5.77 10.45
Asset Turnover 0.59 0.71

BMW is doing very well on most ratios, but the firm has a problem managing inventory versus its peers.
Net Worth Analysis (in millions)

BMW Company Worth Analysis


Stockholders' Equity - (Goodwill + Intangibles) 29,957 €
Net Income x 5 25,480 €
(Share Price/EPS) x Net Income 50,106 €
Number of Shares Outstanding x Share Price 50,135 €
Method Average 38,919 €

Diamler Company Worth Analysis


Stockholders' Equity - (Goodwill + Intangibles) 44,110 €
Net Income x 5 30,475 €
(Share Price/EPS) x Net Income 66,374 €
Number of Shares Outstanding x Share Price 66,363 €
Method Average 51,830 €

Daimler is worth about 32% more than BMW based on 2012 data.
IFE Matrix

Strengths Weight Rating Weighted Score


1. In June 2012, BMW was listed in Forbes magazine as the #1
0.03 3 0.09
most reputable company in the world.
2. BMW owns and produces the Mini marque, and is the parent
company of Rolls-Royce Motor Cars and produces motorcycles
0.03 3 0.09
under the Motorrad and Husqvarna brands, led by the K 1200
GT, R 1200 RT, and F 800 S models,.
3. BMW Group operates 29 production and assembly facilities in
14 countries and has a global dealer network in more than 140 0.09 4 0.36
countries.
4. BMW's premium lineup includes sedans, coupés, convertibles,
and sport wagons in the 1, 3, 5, 6, and 7 Series, as well as the M3 0.09 4 0.36
coupe and convertible, the X5 sport active, and the Z4 roadster.
5. In calendar 2012, BMW Group sold 1.85 million cars and nearly
117,000 motorcycles worldwide, the highest annual total ever for
0.08 4 0.32
the company and an increase of 10.6% over the previous record
year in 2011.
6. Success was led by the highly successful BMW 1 Series, with a
total of 226,829 vehicles sold in 2012, an increase of 28.6% over
the previous year. The BMW X1 also did great in 2012 with a
0.08 4 0.32
total of 147,776 vehicles sold, up 16.9% over the prior year. The
BMW 3 Series Sedan did best though with 294,039 vehicles
delivered, an increase of 22.4% over 2011.
7. In early 2013, BMW Group and Toyota Motor Corp. extended
their long-term collaboration agreement for the joint
development of a fuel cell system, joint development of
architecture and components for a sports vehicle, joint research 0.05 3 0.15
and development of lightweight technologies, and collaborative
research on lithium-air batteries with a post-lithium-battery
solution.
8. China led all nations with 30,000 BMW vehicles sold in 2012,
0.08 4 0.32
50% higher than the 20,000 sold in the USA.
9. “BMW Genius Everywhere” program will began in the USA in
late 2013, with a full launch by early 2014, which is when the new 0.03 3 0.09
BMW i3 electric car is due to go on sale.
10. Total revenue increased 13% in 2012. 0.05 3 0.15
Weaknesses Weight Rating Weighted Score
1. BMW only sold 2,311 units in Russia in 2012. 0.04 2 0.08
2. Over 50% of all motorcycle sales come from Europe. 0.03 2 0.06
3. Note that BMW is the smallest firm (between Daimler, Toyota,
GM, Nissan, and Volkswagen) in terms of # of employees, but 0.04 2 0.08
has the second highest EPS.
4. USA only accounts for 18% of all BMW automobile sold. 0.08 2 0.16
5. USA only accounts for 10% of all BMW motorcycle units sold. 0.02 2 0.04
6. No meaningful sales are derived from developing countries on
0.02 2 0.04
motorcycles.
7. Inventory turnover of 5 vs the industry average of 10. 0.05 1 0.05
8. Quick ratio of 0.66 vs an industry average of 1.0. 0.05 2 0.10
9. Debt-to-equity of 1.24 vs an industry average of 0.70. 0.04 2 0.08
10. Only uses premium gas and cost of repairs can be higher than
0.02 2 0.04
normal.
TOTALS 1.00 2.98

BMW is doing very well in addressing internal issues, but needs to focus on increasing market share in the
USA market.

F. SWOT
SO Strategies

1. Increase presence in the USA by 20% by 2016 for €1 billion (S3, S4,S6, O1, O6, O7).
2. Establish 50 new dealerships in China by 2016 for €25 million (S2, S4, S6, O3, O8).
3. Build 4 new production facilities (Georgia, USA; Southeastern China; Northeastern China; Czech
Republic) for €100 million each (S2, S4, S6, O3, O8).

WO Strategies

1. Open 20 new dealerships in Russia, mostly in Moscow and St. Petersburg (W1, O4, O8).
2. Spend €10 million on advertising motorcycles in Brazil (W2, W6, O3, O6).
3. Spend €25 million on advertising motorcycles in the USA (W5, O6).
4. Spend €100 million to redevelop engines to accommodate gas of lesser octane ratings (W10, O10).

ST Strategies

1. Spend €50 million promoting the advantages of BMW over Audi in the USA market (S1,S4, T7).
2. Offer free sunroofs on all cars sold in the US market in 2014 for a cost of €75 million. (S1, S4, T2, T5,
T6, T7).
3. Establish 50 new dealerships in China by 2016 for €25 million (S2, S4, S6, T6).
WT Strategies

1. Add heated seats in the back seats of all BMW 1 Series cars in 2014 for €25 million (W3, T1, T2, T3,
T4, T5).
2. Reduce the amount of cars provided to European dealerships in 2014 and 2015 by 10% each year (W7,
W8, T8, T9).
3. Spend €25 million on advertising motorcycles in the USA (W5, T7).

G. SPACE Matrix

FP
Conservative Aggressive
7

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

Internal Analysis: External Analysis:


Financial Position (FP) Stability Position (SP)
ROE 4 Rate of Inflation -3
Debt/Equity 4 Technological Changes -2
Net Income 6 Governmental Regulations -3
Revenues 6 Competitive Pressure -7
Company Worth 5 Barriers to Entry into Market -2
Financial Position (FP) Average 5.0 Stability Position (SP) Average -3.4
Internal Analysis: External Analysis:
Competitive Position (CP) Industry Position (IP)
Market Share -3 Growth Potential 5
Product Quality -1 Financial Stability 6
Customer Loyalty -2 Ease of Entry into Market 6
Technological know-how -2 Resource Utilization 5
Control over Suppliers and Distributors -2 Profit Potential 5
Competitive Position (CP) Average -2.0 Industry Position (IP) Average 5.4

While BMW is smaller than its larger competitors, it still is a large firm, offering an excellent product and should
continue to expand into USA and China, moving forward.

H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

Sales for BMW, Daimler, and Honda grew 11%, 8%, and 25% respectively from 2011 to 2012.
I. The Internal-External (IE) Matrix

The Total IFE Weighted Scores


Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

3
High 1

3.0 IV V VI

The
EFE
Total Medium
Weighted
Scores

2.0 VII VIII IX

Low

1.0
Segment 2012 Total Sales
(in millions)
(1) Europe (not including Germany) €16,364
(2) Asia 14,436
(3) North America 12,991
(4) Germany 11,974
Other 3,042
Total €58,805

BMW is a well-balanced company with revenues fairly consistent across regions. With the high euro and
lower transport costs, it is assumed the Germany would have the highest profit margin, resulting in that
segment being in the upper right corner even though it has fewer revenues. The firm also produces
motorcycles, but only 2% of total 2012 revenues were derived from these operations.
J. QSPM

Build Four
New
Increase
Production
Dealerships
Facilities in
in China and
China, USA,
Russia
and Eastern
Europe
Opportunities Weight AS TAS AS TAS
1. Growth in sales of luxury vehicles exceeds growth in all other
0.10 3 0.30 4 0.40
automobile categories.
2. Formula One, NASCAR, Indy Racing and other racing
0.04 0 0.00 0 0.00
organizations are outstanding ways to promote products.
3. Growing middle and upper class in China, India, Eastern Europe
0.05 3 0.15 4 0.20
and Latin America.
4. Financially well to do people are less effected by down turns in
0.05 4 0.20 3 0.15
the economy than middle and lower class families.
5. Growing desire for hybrid style cars among customers. 0.03 4 0.12 2 0.06
6. BMW head of sales and marketing recently said “We are
confident of healthy sales growth especially in Asia and the 0.07 4 0.28 3 0.21
Americas.”
7. Ford and GM saw sales drop by around 10% in Europe. 0.07 4 0.28 2 0.14
8. Growing demand for diesel engines and trucks in China and
0.05 4 0.20 1 0.05
other developing markets.
9. Ford and GM continue to struggle in the USA and international
0.08 2 0.16 3 0.24
markets.
10. Germans take a sense of pride in their subject matter and want to
be as well prepared as possible, so they can contribute and make
0.04 0 0.00 0 0.00
key points during the meeting. In general, the German worker is
well skilled.
Threats Weight AS TAS AS TAS
1. Volkswagen (VW) is the largest car manufacturer in Germany
and aims to double its USA market share from 2% to 4% by 2014, 0.06 3 0.18 1 0.06
and aims to be the world's largest carmaker by 2018.
2. VW introduced diesel-electric hybrid versions of its most
popular models in 2012, including the Jetta, followed by the Golf 0.03 0 0.00 0 0.00
Hybrid and the Passat. VW owns Porsche.
3. Mercedes-Benz is active in three forms of motorsport racing:
Formula Three, DTM, and Formula One. The parent, Daimler 0.04 0 0.00 0 0.00
AG, holds a 60 percent stake in Formula One team Mercedes-
4. Mercedes-Benz’s U.S. sales surged 11% in January 2013, in its
effort to overtake BMW in luxury-auto deliveries for all of 2013. 0.06 3 0.18 1 0.06

5. Lexus sales (owned by Toyota), were up 23% in the USA in 2012


through November, and are expected to gain at least 10% in 0.05 3 0.15 1 0.05
2013.
6. Audi designs, engineers, manufactures and markets automobiles
and motorcycles and competes heavily with BMW on luxury 0.07 0 0.00 0 0.00
cars.
7. Rising gas prices and pressure to produce more fuel-efficient
0.02 0 0.00 0 0.00
automobiles and growing concern over emissions and pollution.
8. Public transportation is fairly common in much of Europe and
0.03 0 0.00 0 0.00
large cities in the USA.
9. “Looking ahead, we expect the headwinds in Europe to remain,”
0.06 2 0.12 4 0.24
said Ian Robertson, BMW’s head of sales and marketing.
Build Four
New
Increase
Production
Dealerships
Facilities in
in China and
China, USA,
Russia
and Eastern
Europe
Strengths Weight AS TAS AS TAS
1. In June 2012, BMW was listed in Forbes magazine as the #1
0.03 0 0.00 0 0.00
most reputable company in the world.
2. BMW owns and produces the Mini marque, and is the parent
company of Rolls-Royce Motor Cars and produces motorcycles
0.03 0 0.00 0 0.00
under the Motorrad and Husqvarna brands, led by the K 1200
GT, R 1200 RT, and F 800 S models,.
3. BMW Group operates 29 production and assembly facilities in
14 countries and has a global dealer network in more than 140 0.09 4 0.36 3 0.27
countries.
4. BMW's premium lineup includes sedans, coupés, convertibles,
and sport wagons in the 1, 3, 5, 6, and 7 Series, as well as the M3 0.09 0 0.00 0 0.00
coupe and convertible, the X5 sport active, and the Z4 roadster.
5. In calendar 2012, BMW Group sold 1.85 million cars and nearly
117,000 motorcycles worldwide, the highest annual total ever for
0.08 0 0.00 0 0.00
the company and an increase of 10.6% over the previous record
year in 2011.
6. Success was led by the highly successful BMW 1 Series, with a
total of 226,829 vehicles sold in 2012, an increase of 28.6% over
the previous year. The BMW X1 also did great in 2012 with a
0.08 0 0.00 0 0.00
total of 147,776 vehicles sold, up 16.9% over the prior year. The
BMW 3 Series Sedan did best though with 294,039 vehicles
delivered, an increase of 22.4% over 2011.
7. In early 2013, BMW Group and Toyota Motor Corp. extended
their long-term collaboration agreement for the joint
development of a fuel cell system, joint development of
architecture and components for a sports vehicle, joint research 0.05 0 0.00 0 0.00
and development of lightweight technologies, and collaborative
research on lithium-air batteries with a post-lithium-battery
solution.
8. China led all nations with 30,000 BMW vehicles sold in 2012,
0.08 4 0.32 3 0.24
50% higher than the 20,000 sold in the USA.
9. “BMW Genius Everywhere” program will began in the USA in
late 2013, with a full launch by early 2014, which is when the new 0.03 0 0.00 0 0.00
BMW i3 electric car is due to go on sale.
10. Total revenue increased 13% in 2012. 0.05 3 0.15 4 0.20
Weaknesses Weight AS TAS AS TAS
1. BMW only sold 2,311 units in Russia in 2012. 0.04 1 0.04 4 0.16
2. Over 50% of all motorcycle sales come from Europe. 0.03 3 0.09 2 0.06
3. Note that BMW is the smallest firm (between Daimler, Toyota,
GM, Nissan, and Volkswagen) in terms of # of employees, but 0.04 4 0.16 3 0.12
has the second highest EPS.
4. USA only accounts for 18% of all BMW automobile sold. 0.08 4 0.32 1 0.08
5. USA only accounts for 10% of all BMW motorcycle units sold. 0.02 4 0.08 1 0.02
6. No meaningful sales are derived from developing countries on
0.02 4 0.08 3 0.06
motorcycles.
7. Inventory turnover of 5 vs the industry average of 10. 0.05 0 0.00 0 0.00
8. Quick ratio of 0.66 vs an industry average of 1.0. 0.05 0 0.00 0 0.00
9. Debt-to-equity of 1.24 vs an industry average of 0.70. 0.04 0 0.00 0 0.00
10. Only uses premium gas and cost of repairs can be higher than
0.02 0 0.00 0 0.00
normal.
TOTALS 3.92 3.07

Both strategies are attractive, but building new production plants, especially two new ones in China and
one in the USA, should be undertaken first.

K. Recommendations
1. Increase presence in the USA by 20% by 2016 for €250 million.
2. Establish 50 new dealerships in China by 2016 for €25 million.
3. Build 4 new production facilities (Georgia, USA; Southeastern China; Northeastern China; Czech
Republic) for €100 million each.
4. Open 20 new dealerships in Russia, mostly in Moscow and St. Petersburg for a cost of €10 million.
5. Spend €10 million on advertising motorcycles in Brazil.
6. Spend €25 million on advertising motorcycles in the USA.
7. Spend €100 million to redevelop engines to accommodate gas of lesser octane ratings.
8. Spend €50 million promoting the advantages of BMW over Audi in the USA market.
9. Offer free sunroofs on all cars sold in the US market in 2014 for a cost of €75 million.
L. EPS/EBIT Analysis (in millions expect for EPS and Share Price)
Amount Needed: €950
Stock Price: €83.28
Shares Outstanding: 602
Interest Rate: 5%
Tax Rate: 35%

Common Stock Financing Debt Financing


Recession Normal Boom Recession Normal Boom
EBIT 7,500 € 8,000 € 10,000 € 7,500 € 8,000 € 10,000 €
Interest 0 0 0 48 48 48
EBT 7,500 8,000 10,000 7,453 7,953 9,953
Taxes 2,625 2,800 3,500 2,608 2,783 3,483
EAT 4,875 5,200 6,500 4,844 5,169 6,469
# Shares 613 613 613 602 602 602
EPS 7.95 8.48 10.60 8.05 8.59 10.75

20 Percent Stock 80 Percent Stock


Recession Normal Boom Recession Normal Boom
EBIT 7,500 € 8,000 € 10,000 € 7,500 € 8,000 € 10,000 €
Interest 38 38 38 10 10 10
EBT 7,462 7,962 9,962 7,491 7,991 9,991
Taxes 2,612 2,787 3,487 2,622 2,797 3,497
EAT 4,850 5,175 6,475 4,869 5,194 6,494
# Shares 604 604 604 611 611 611
EPS 8.03 8.56 10.72 7.97 8.50 10.63

Debt financing produces the highest EPS for BMW; however, with the current level of debt above the
industry average, equity financing or some combination of financing may be more appropriate. The
equations here are assuming 5% interest, so if it were possible to obtain a lower rate, then debt may indeed
be the most attractive option.

M. Epilogue
BMW Group is doing well in all product lines and regions of the world, although sales in Europe lag other
regions. The company reported its best May sales ever in 2013 when 166,397 Group vehicles (BMW,
MINI and Rolls-Royce) were sold worldwide, an increase of 6.0 percent. Worldwide sales of BMW brand
vehicles grew 7.8 percent to 139,161 cars. Sales of the BMW X1 were also great with 14,718 vehicles
being delivered in May, an increase of 29.3 percent over the same month in 2012. The BMW 3 Series also
sold well in May with a total of 41,811 vehicles delivered, an increase of 27.5% compared to 2012. Sales
of the BMW 6 Series were great too with 2,391 vehicles delivered worldwide in May 2013, up 18.9 percent
over the prior year.

Also in May 2013, worldwide sales of the BMW MINI declined 2.1 percent with 26,955 cars delivered.
Year-to-date, MINI worldwide sales however were down 1.5 percent from last year’s level with 117,694
units sold in the first five months. But, BMW Motorrad sales increased 14.2 percent to 13,081 vehicles. In
the first five months of 2013, BMW Motorrad increased sales by 7.1 percent to 52,400 vehicles. In Asia,
BMW Group sold a total of 46,838 vehicles in May 2013, a 13.4 percent increase over the prior year,
including in Japan (4,810/ +16.2%), South Korea (3,340/ +11.3%), and Mainland China’s 31,938
deliveries, an increase of 14.8 percent over the same month last year. Year-to-date, 148,319 BMW and
MINI vehicles were sold in Mainland China, up 9.8 percent over the prior year.

Also for May 2013, BMW Group reported big increases in sales across America with 38,771 vehicles
delivered (previous year 35,127/ +10.4%). The USA contributed 31,174 deliveries to this total, an increase
of 10.1 percent over the same month in 2012. A total of 139,142 BMW and MINI vehicles were sold in the
USA since the beginning of 2013 (previous year 130,843/ +6.3%). In Europe, sales remained at the year
2012 level in May with 74,918 units sold, but in Russia, sales increased 19.9 percent to 3,891 units. Year-
to-date as of June 1, 2013, BMW Group sales in Europe grew 2.2 percent to a total of 352,013 vehicles.

In September 2013, BMW Group sold 189,675 vehicles, an increase of 6.7 percent over the 2012 figure.
For the first nine months of 2013, BMW’s sales increased 7.5 percent to a new all-time high of 1.43 million
vehicles delivered. The excellent results were led by the BMW 3 Series which showed a 13.9 percent
increase in units sold in September 2013 vs the prior year. The BMW 5 Series reported a 2.7 percent
increase in units delivered, while the BMW 6 Series sales grew 22.6 percent. BMW’s sales in Asia in
September 2013 grew 18.0 percent compared to 8.3 percent in the Americas and only 0.7 percent in
Europe.

Chapter 23: BMW

10 Basic Questions

1: B

2: A

3 A

4: D

5: B

6: C

7: A

8: C

9: A

10: D

15 Applied Questions

Strategy Model/Process

1: A

2: D

3: B

4: B
5: A

Market Segmentation and Product Positioning

1: B

2: A

3: B

4: C

5: D

Foreign Business Culture

1: C

2: B

3: B

4: D

5: A