managers have faced strategic as well as tactical business decisions...
WHEN YOU THINK OF CARS THAT COMBINE FINE
ENGINEERING, HIGH PERFORMANCE, AND CUTTINGEDGE STYLING, YOU ARE LIKELY TO THINK OF BMW. The Bayerische Motoren Werke, or Bavarian Motor Works, was founded in Germany in 1916 as a company devoted to manufacturing aircraft engines. In the early 1920s, BMW began to make motorcycles. In 1928 it produced its first car. Today, BMW employs nearly 100,000 workers in 23 factories in 15 countries to produce eight car models. In 2004, it had worldwide sales of about $70 billion. To compete in the automobile market, the managers of BMW must make many strategic decisions, such as whether to introduce a new car model. In 2004, for example. BMW introduced the 1-series, a hatchback that is significantly smaller than most other models.
Some BMW managers had opposed developing the 1-series
because they believed that it was inconsistent with the companys image of producing more expensive, higherperformance models. But other managers argued that the company needed a model that would appeal to younger drivers and could compete with the Volkswagen Golf and the Audi A3. Over the years, BMWs managers have also faced the strategic decision of whether to concentrate production in factories in Germany or to build new factories in its overseas markets. Keeping production in Germany makes it easier for BMWs managers to supervise production and to employ German workers, who generally have high levels of technical training. Building factories in other countries, however, has two benefits.
First, the lower wages paid to workers in other countries
reduce the cost of manufacturing vehicles. Second, BMW can reduce political friction by producing vehicles in the same country in which they sell them. In 2003, BMW opened a plant at Shenyang, in northeast China, to build its 3-Series and 5-Series cars. Previously in 1995, BMW opened a U.S factory in Spartanburg, South Carolina, which currently produces Z4 roadster and X5 sports utility vehicle (SUV).
BMWs Net Profit Rises 2.5% As New
Models Benefit Sales Bayerische Motoren Werke AG posted a 2.5 % increase in the first-quarter net profit, as the launches of the 6-Series coupe and X3 sport-utility vehicle boosted sales. The luxury-car manufacturer, which sells the BMW, Mini and Rolls-Royce brands, benefited from new products that allowed it to Daimler-Chrysler AG, in terms of vehicle sales in the years first three months. BMWs net profit rose to $632.3 million from $610 million a year earlier. Revenue climbed 4.9% to 10.8 billion from 10.3 billion. The rise in revenue outpaced the gain in car sales, which climbed 3.2% to 269,973 vehicles from 261,573.
The company, based in Munich, got off to a slow start in
2004 as renovation work at its Munich plant through the end of January slowed production of the 3-Series. The second quarter began well, as the company sold 9% more cars in April compared with a year earlier, Chief Executive Helmut Panke said. That jump in car sales suggest that a stronger earnings rise is in store for the current quarter. Mr. Panke said he expects earnings growth to roughly track a projected rise in car sales. The company repeated a forecast for the record 2004 earnings, aiming to top 2002s net profit of 2.02 billion. Whats encouraging is that they still expect to achieve record earnings, said Michael Raab, an analyst at Sal. Oppenheim.
BMWs first -quarter performance was enough for the company
to overcome Mercedes as the worlds leading maker of premium cars - at least for now. BMWs car sales exceeded those of Mercedes, although Mercedes had the upper hand in revenue terms. BMW is definitely faring way better than Mercedes, but the two companies are in different stages in their product cycles, Said Thomas Ryard, an analyst with forecaster World Markets Research Centre. Im not sure its going to be a long-lasting trend. By 2005, Mercedes should come back. Last year, BMW launched its flag-ship 5-Series. This year, it is rolling out the 6-Series, X3, Mini convertible and 1-Series compact. Most of the development expenses for these models have already been booked.
By contrast, Mercedes is at the beginning of the biggest
product offensive in its history. It launched a redesigned CClass in March and is bringing out new versions of its compact A-Class this fall. In 2005, sport-utility vehicles, a redesign of the companys luxury S-Class, and a crossover family, known as the R-Class. But Mercedes, which produces the Mercedes-Benz, Smart and Maybach brands, wont realize the benefits of these new models until later this year and in 2005. Mercedes first quarter car sales declined 9% to 266,000 vehicles, burdened by the new-model program. But the Mercedes-Benz brand still topped BMWs core brand, selling 246,000 cars during the first quarter, compared with the BMW brands 222,000.
Key points in the Article
The Article discusses the strong performance of BMW during the first months of 2004. the firms sales rose sufficiently for it to overtake Mercedes for the lead in production of high-priced, or premium, cars. The article spotlights the strong sales of the X3 SUV, which along with the Z8 roadster, is assembled at the companys plant in Munich, Germany. Renovations of the Munich plant reduced production of the X3 at the beginning of the year. BMW had been introducing new models and also increasing its capacity to produce existing models.
Analyzing the News
a)We can use the economic model of production possibilities frontiers to analyze this news article. First, note that the renovations at the Munich plant meant that initially the company was operating inside its production possibilities frontier at this plant. This is shown in fig 1, where production in early 2004 is represented by point A. moving to the frontier makes it possible for BMW to produce more roadsters and more SUVs.
b) The strong demand for the X3 SUV has caused BMW to
allocate more workers and machines to producing this model. Once BMW is on the production possibilities frontier at the Munich plant, its opportunity cost of producing more X3 SUVs is the reduction in the quantity of Z8 roadsters produced. ( Actually, we are simplifying a little here, because at various times BMW has produced other models in the Munich plant as well. We could show this by drawing a production possibilities frontier with the quantity of X3 SUVs on the horizontal axis and the quantity of all other models produced in the plant on the vertical axis. But the point would be the same: once BMW is on the production possibilities frontier for this plant, it can only produce more X3s by producing less of something else) in fig 2 the popularity of the X3 causes BMW to move from point B to point C.
BMWs Net Profit Rises 2.5% as New Models Benefit Sales