BMW, Suffering From Premium Irish Flu, Taking Action on Inventories
BMW went on a mad rager last year as it did everything it possibly could to claim the U.S. luxury sales crown from Mercedes and Lexus — and now katzenjammer is in full effect.
The premium German brand is looking at piled-up stocks of cars sitting on dealer lots. Predictably, those dealers aren’t happy, and BMW is trying to inject some saline to recover.
According to Automotive News, BMW attributes the inventory glut to equities market volatility and low oil prices.
“Affluent customers generally ride out recessions OK, but specific market volatilities can directly affect the premium vehicle market, and that’s what we’re experiencing right now,” Alexander Bilgeri, spokesman for BMW North America, wrote in an email to AN.
The situation is made even worse thanks to BMW hunting down the sales crown and flooding dealers with inventory to take advantage of the strong U.S. dollar and a weakening Chinese market, though it doesn’t seem to be an issue specific to BMW.
From Automotive News:
AutoNation, the largest U.S. new-vehicle retailer, warned in early January that there was a bulging inventory of unsold cars, especially luxury models. Late last month, Group 1 said it planned to cut orders, particularly for luxury cars, and claimed BMW, Mercedes and Audi each had more than 90 days of supply at its stores.
When asked about the number of days supply or whether BMW was now suffering from the after-effects of trying to win the sales crown, spokespeople for BMW declined to comment.
Premium sales tanked in the first two months following 2015. Through the first one-sixth of 2016, U.S. sales of passenger cars sold by so-called premium brands plunged 17 percent.
BMW’s CFO says the company is committed to taking its medicine, and will reallocate future inventories to rid itself of its 2015 hangover.
“We are adjusting our production plans and reallocating more SUVs to the U.S.,” CFO Friedrich Eichiner said during a conference call with analysts last week.
BMW is currently offering moderate incentives on some 2016 models and much heavier incentives on leftover 2015 stocks.
[Image: © 2016 Alex L. Dykes/The Truth About Cars]
More by Mark Stevenson
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3 series aren't what they once were. First, the competition is getting better. Second, the steering feel is not as good and finally, some of the materials, while looking good enough, don't seem that great. Specifically the leather seems thin and ill fitting on some models I see on lots. For a given price, there are better cars out there.
The Germans in general, are in a very precarious position, once the credit ramping that has been fueling their sales in the West slows down. Their whole business model is built around people signing up to pay for for ever more rapid depreciation, over and over; choosing new-new, gone in two, over tried and true. The Japanese hit that wall in their home market when their credit bubble finally burst, and proved beyond reignition, no matter the level of desperation. If you look at a large, perhaps majority, chunk of typical BMW customers, the percentage of their incomes that is tied either directly, or only a degree or two separated from, simple credit fueled asset price "appreciation", is staggering. Then look at how credit volumes in Japan, and asset prices in Tokyo have fared since 1990, and you'll get more of an understanding for why Toyota, Honda et al, are reluctant to "bet the business" on the currently highly profitable "high end" of the market. Instead offering "luxury" models that require little commitment above and beyond their existing mainstream brands. When buyers aren't paying in play money anymore, and after a while realize that they never again will, their priorities change dramatically. Much as Yellen and Draghi may want to delude themselves otherwise, they're not going to be able to forever continue to pump more credit into increasingly old and retired people in the West, either. And once that finally and irreversibly sinks in, there's only one way to go here as well. Again, just look at Japan, and consider if you really think the BMW cost and price model, looks to be a good fit for that kind of future. 'Cause it's coming this way from Japan, just like the rising sun.