BMW North America Business Update: Presentation by Jim O’Donnell, President BMW of North America, LLC
Thank you, good morning everyone and welcome as we celebrate the beginning of another chapter in BMW’s commitment in America. Today, I’d like to provide to you an update on our business – how it has grown, where we see it today, and where we are going.
First, a bit of history. Many feel nostalgic for the economic prosperity of the 1990’s, making it easy to forget the time of the Spartanburg plant opening in 1994. Then, the U.S. was recovering from the recession of the early 90’s. A period not too different from the one we are in now. BMW Sales in the US in 1994 totaled only a little more than 84,000 vehicles. But very soon after, we began the high growth period that coincided with the emergence of a new generation of affluent Americans. This culminated in 2007 when BMW Group sold more than 336,000 vehicles in the U.S.
But perhaps most incredible of all… here we are today in the Southeast….a German company, building cars for world markets and providing thousands of jobs in the U.S. And since opening our plant here in South Carolina in 1994, BMW has become this country’s largest automotive exporter to non-NAFTA countries, contributing to the US balance of trade and reducing our exposure to exchange rate variations. It’s a strong foundation for us to build upon here in the U.S. market.
The right business decisions with their ensuing success have brought us to where we are today. We have created a strong bond with our customers – one that’s been developed and nurtured for over 40 years. “The Ultimate Driving Machine” has developed into the strongest brand claim in the industry in this country. We are fortunate to have this kind of compelling attraction.
At the same time, the global economic slump has changed the way consumers view and purchase all premium products, from luxury watches to expensive homes. It has had a profound effect on the auto industry as well.
2009 was a terrible sales year for the entire auto industry. Sales were 10.4 million vehicles in the U.S. with the overall market down 21% and the premium market down 20%. The BMW Group was down 20%.
The recession has proven to be amazingly stubborn. I think we can also say the start of the recovery is proving to be a bit stubborn as well. The changes in consumer spending patterns I referred to may be with us for a long while. People are taking much greater care with major purchases. As a result they might buy less, but they buy better quality.
Those few words sum-up the marketplace in 2010. At the beginning of the year, we at BMW forecast total sales in the U.S. market to be about 11.4 to 11.5 million vehicles. In March and April we experienced the dawn of a false hope and many others raised their sales projections for the market to 12 million. We didn’t, and kept to our forecast of an 11.5 million market and our sales target increase to about 10%.
That means we believe BMW sales in the U.S. will reach about 212 to 215,000 and with MINI added, sales for the BMW Group should will be somewhere close to 260,000 this year, putting sales at about the same level as we were in 2002 and making this year the 7th best year we’ve had in the US..
Predictions for the US premium market look to be close to spot-on as the overall premium segment is showing low double-digit growth this year and probably will for the next two years as well.
So now in the fourth quarter of 2010; what do we see happening in the remaining months? A few salient points. This is a push market. We have to work, claw and fight for every sale. The entire market is incentivized because even though a lot of new vehicles are being introduced, the economy remains very conservative. For both of these reasons, we can, and do take more satisfaction in the sales gains and business performance improvements we’ve made so far this year.
We feel comfortable we will continue to close the gap with Lexus and Mercedes. We predicted this in the first half of the year when we had only a few previous generation 5 Series in stock and awaited the all-new 5 Series. Our X3 volume of vehicles in stock was low as well.
These are two big volume models. The 5 Series accounts for about 20% of our sales in the U.S. In its best selling year – 2004 - the X3 accounted for more than 13% of our U.S. sales with 34,000 sold.
MINI has seen growth but the entire small vehicle segment – entry to premium – has had a strange year. You would think the twin factors of reduced consumer spending power, and the image effect of the BP oil spill that made everyone across America more aware of environmental factors would have prompted higher sales of all small vehicles. And yet, we have seen the strongest full-size truck and SUV sales in the last two years. The reason is simple; continuing low fuel prices in the $2.50-2.70 range. However, MINI sales are growing and will finish the year with increased momentum, having laid the groundwork for the launch of the all-new MINI Countryman.
Here’s yet another important indicator for our company - we continue to add new buyers to the BMW brand - improving our revenues and building our customer base for the future. While our sales of new vehicles dropped like all other premium brands in 2009, we increased our sales of used BMW’s by 20%, and about half of those buyers were new to the brand. This continues in 2010 when we will sell slightly fewer used vehicles because of increased new car sales but even still, half of those customers will also be new to the BMW brand.
Now, what about the future of the BMW Group here? We are today celebrating completion of the one billion dollar investment in our business in America. An investment we began and continued, even in the depths of the recession, because of our confidence in the future.
BMW is in the heart of the strongest new model cycle in our history. Over 60% of our models will be replaced from 2010 through 2012. In numbers, we’ll have nine all-new vehicles on the road by the end of 2011 that we didn’t have at the close of 2009. This began with the new 5 Series this year. Sales momentum is growing and the rollout of more versions continues right into next fall.
Also this year, we introduced major mid-lifecycle upgrades to our best-selling X5 and 3 Series. Sales results have proven the success of these changes. The current 3 Series is in the sixth year of its model life and it continues to lead its segment. X5 volume is on the rise again after last year. We estimate a sales increase of more than 25% this year.
Also in 2011, our 1 Series Coupe’ and Convertible models will have exterior, interior and technical enhancements. This is in addition to the upgrades and improvements we make in all of our vehicles from year-to-year.
As I said a minute ago, most predictions for the premium market improvement in the next two years is low double digit growth. However, because of the compelling new vehicles we are now introducing, we have every reason to believe our BMW Group growth will outpace the overall premium market in America.
And now, we are here in Spartanburg for the launch of the all-new, second generation X3.
Here are our expectations for this new model. We intend to fight for leadership in the segment. We created it, and for a time had it entirely to ourselves. Now, there is good, strong competition but we believe the market will see the new X3 as the best choice once again. We are going to improve our position and make it a tight race for the lead.
We have innovation to help us. In particular, we intend to make the unique BMW build-to-order program called CORE – Customer Oriented Retail Experience – a major element in the launch of this new vehicle. We know when our customers can order exactly what they want and get it quickly, they tend to order more options, their satisfaction and loyalty goes up, and we improve our revenue because we sell more fully equipped vehicles. That’s our approach.
We’re going to enhance the desire for build-to-order with a variety of actions in the marketing of this program such as giving new X3 customers the chance to see their customized X3 being built right here in Plant Spartanburg. Customers who order their X3 will be able to log-in to a private internet site and watch their car in assembly. Here’s an example of how it will look.
The build segment is one part of a larger package customers will be able to see on their private website. The CORE process goes online early in 2011 as the new X3 is being introduced to the U.S. market.
We have one more bit of good news for the X3 story. I am happy to say that we will introduce the new BMW X3 28i Sports Activity Vehicle at a price of $37,625 which includes destination and handling. That’s $2100 less than the base price of today’s outgoing X3. And, the all-new X3 will include more standard equipment such as Bluetooth connectivity, I Pod-USB interface, and anti-theft alarm system.
The new X3 35i will be introduced at a price of $41, 925 including destination and all of the same standard features of the 28i, and with the addition of standard BMW Xenon Adaptive headlights. We are serious about our intent to once again be a major player in this competitive segment.
But it doesn’t stop with the X3. The all new MINI Countryman, the all-new 6 Series, and the new BMW X1 are among the new models that will be introduced to the U.S. market in 2011. There will also be further advances and innovations with more EfficientDynamics technologies and the introduction of a new level of features to BMW’s Connected Drive information and entertainment system.
Then we get to 2012 and the fun continues! But that’s another invitation for you to come back!
Thank you very much and now I will be glad to take your questions.