BMW to cut volume and jobs in U.S.

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Diana T. Kurylko Automotive News Europe
September 22, 2008 06:01 CET

WOODCLIFF LAKE, N.J. — BMW's new North American chief wants to stop pushing for maximum sales volume in a declining market — even if it means bringing 16 years of U.S. sales increases to a halt.

BMW Group's U.S. operations will not take 44,000 new BMW brand cars and trucks that were to be allocated to the United States this year, said Jim O'Donnell, CEO of BMW (U.S.) Holding Corp. Those vehicles will go to markets where they can be sold more profitably, he said.

The smaller sales target is part of a bigger rethinking of U.S. strategy that O'Donnell will present to his German bosses in January. That plan could include the reintroduction of four-cylinder powertrains, O'Donnell said. Currently, the smallest powerplant in the BMW brand's U.S. lineup is a six-cylinder engine.

In an interview last week, O'Donnell said he will:

-- Cut lease volume at least 10 percentage points.

-- Reduce incentive spending and end the traditional December blowout.

-- Change dealer bonuses to boost customer satisfaction.

-- Cut corporate costs. O'Donnell says he will eliminate 90 North American jobs.

"We want to see how the market is going and will revisit our aspirations in January," said O'Donnell, 58. The Scot, who took the helm at BMW in April, has long been familiar with the United States (see story, Page 38).

"When you have had 16 years of growth, you do not necessarily look too closely at what you are doing and how much you are spending," O'Donnell said. "I need that fresh look at the organization."

Cost cuts

O'Donnell has ordered his department heads to look at cutting costs. They were to have reported back to him by the end of last week. Marketing will be a key area for slashing expenses. O'Donnell said it is wrong "to push in a market that is declining."

O'Donnell expects BMW Group — which includes Rolls-Royce and Mini — to suffer a U.S. sales decline of 10 percent this year.

Overall U.S. sales of BMW, Mini and Rolls-Royce totaled 336,265 units last year. Within that total, the BMW brand accounted for 293,795 units.

"We'll be down maybe a little bit less than the marketplace, about 10 percent down — which I am fine with," O'Donnell said. "I'd rather sell fewer cars than blow them out the door without any profit."

Soft BMW brand sales account for the group's overall downturn. O'Donnell expects Mini sales to approach 50,000 units this year, up from 42,045 in 2007.

The weak dollar and anticipated softness in the U.S. market led O'Donnell to cut his U.S. allocation of vehicles. BMW even slashed the U.S. allocation of the X3 small crossover by several thousand vehicles, even though it's in demand because of high fuel prices.

"We cut back on the X3 primarily because it could be sold somewhere else and it wasn't a huge profit for us at the moment," O'Donnell said.

No December blowout

O'Donnell also is ending the mad push that BMW makes at the end of the year. Traditionally, that's when the automaker offers its highest incentives, most generous lease offers and dealer cash to compete with similar promotions by Lexus and Mercedes-Benz.

He also has sharply reduced BMW's lease deals, which normally account for a big portion of sales. BMW's lease penetration fell from 63 percent in February to 50 percent in August, according to the Power Information Network.

Because of the decline in sales and a renewed emphasis on profits, O'Donnell has decided not to put any incentives on BMW's three newest cars: the compact 1 series, the X6 crossover and the M3 performance sedan. The X6 is so hot worldwide that BMW raised its base price, including shipping, to $56,325, up $3,000.

What has been the blow-back? Absolutely none, says O'Donnell. Dealers tell him they can't keep the X6 in stock.

Source:  Automotive News Europe

Article Date: Sep 23, 2008
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