BMW dealers worry that the brand's prices are too high and that it is losing the value-for-the-money perception that fueled its success in the U.S. market. BMW no longer is "the smart alternative" in the luxury segment but "is priced on parity with Mercedes-Benz," says James Walker, chairman of the BMW National Dealer Forum. In the U.S. market, where stores such as Wal- Mart reign, that's a problem, he says.
Dealers also are concerned about maintaining profitability as the lineup grows and look to BMW for further assistance, Walker says. The brand is expanding its range rapidly, with a smaller SUV and the 6-series coupe and convertible. The smaller 1-series car will debut in two years.
"Our business is growing by leaps and bounds," Walker says, "and that growth requires an enormous investment by dealers. Dealers have to make investments to distribute this increased volume. We also have to have visibility for profitability."
Walker was interviewed by Staff Reporter Diana T. Kurylko.
How was the past year for BMW?
We started off with some difficulty because we had excess inventory. But we worked our way through that pretty quickly. BMW is not reluctant to do whatever we need to move the iron. They used some aggressive programs - including subvention - to get through that.
It ended up being a very strong year.
What is the hot product for BMW?
We have so much new product, and generally new product is hot. The 5 series is good. The X3 (SUV) will be wonderful. We have new technology in the X5 (SUV) - new all-wheel drive - and that will support it through the last two years of the build-out. We have a new 6-series coupe and convertible coming, and that will be extremely hot.
How is BMW positioned?
My sense is that BMW is repositioning itself even more upmarket. I think we have to maintain the appropriate value relationship in the eyes of the consumer. That will be a challenge.
That doesn't mean we can't do it. BMW has always been the smart alternative. It's not that anymore. If you look across the line, we are priced on parity with Mercedes-Benz. That is a change in strategy, and that presents a unique set of opportunities for us.
The U.S. is so value-conscious. The largest company in the world is Wal-Mart. It was built on the back of value. The U.S. consumer embraces value. If you put a value choice in front of U.S. consumers, they will buy it.
BMW built its strength as much on value as the ultimate driving machine. We are moving forward on the ultimate driving machine and hoping the consumer sees all the value that offers.
What new products are on the way?
We have the X3, the 5 series and 6-series coupe. We are loaded when it comes to new product. The 3 series, which is getting a little long in the tooth, has a new performance package that is very good and selling well. It is breathing new life into the 3 series.
How do you expect the X3 SUV to be received? It has gotten some mixed performance reviews.
The buff books were hard on the X3. I think the car is spectacular. It is value priced, and it is less expensive than a four-wheel-drive 3-series station wagon. I believe it will do very well.
Have styling changes affected sales?
BMWs are never boring. The new styling is not boring, and people tend to love it or hate it. I have not had anyone not buy the car because of the way it looks. I don't sense that the styling is hurting us.
Is the controversial styling of the 7 series an issue?
No. That car is selling very well. It is selling better than the car it replaced. It's all about how many we sell. There may be people that dislike the styling.
How are customers and dealers dealing with the iDrive joystick control for climate, navigation and entertainment systems?
That is one of those things that is polarizing. iDrive will continue to evolve into something that consumers find friendly.
Have you done anything special for customers because of iDrive?
We have a clinic to show everyone who has bought the car how to use it. The 7 series cannot be done in one 30-minute delivery. Thirty-year olds get computers and high technology. These cars are for 50-somethings, and we don't get it right away. I didn't grow up with a mouse in my hand, but a lot of young people did. There is too much going on in a car, navigation, satellite control, etc. - and I am sure there will be Internet access. How can you do it all without one control without taking your eyes off the road?
Will the small 1 series sell?
How far can you stretch the brand? Time will tell. It's important for dealers to have the volume. We desperately need the volume. There is enormous pressure. Our margins are shrinking, and we can only make it up with volume. X3 is the first step, and the next step will be the 1 series.
Have you seen the 1 series?
Yes, and I was absolutely impressed. It is everything you expect it to be. It is not a decontented or stripped down BMW but a BMW through and through. I have not driven it.
Do American buyers still associate size with price?
Yes to a certain extent, particularly with imports.
Can BMW overcome this with the smaller 1 series?
I am sure this car will be marketed as the ultimate driving machine. It could be marketed as the successor to the 2002. If the BMW club people pick up on this car, it will be a whale of a success.
What is your dealer council's role?
Our council is an advisory group to BMW. We would like to think we have a lot to say, but BMW sets its own way. It is an extremely effective relationship. We have market advisory councils, regional advisory councils and the dealer forum. Issues bubble up to the dealer forum, so every dealer has the opportunity to be heard at the dealer council. Every issue raised has been addressed.
What is the top priority of the dealer council in 2004?
Dealer profitability. Our business is growing by leaps and bounds, and that growth requires an enormous investment by dealers. Dealers have to make investments to distribute this increased volume. We also have to have visibility for profitability. We have pointed out to the BMW leadership how important that is. We have to see return on our investment.
How are they reacting?
We are focusing on the cost side, to make sure there are no extra costs. We have an $80-per-car fee for technology and $80 for training. These are added to the invoice of every car. BMW buys training and technology centrally with this money. They have a support program for dealers with exclusive dealerships - you get below market interest rates if you build an exclusive facility. Those are ways we are trying to ring costs out of the system.
We made a case that our labor rate reimbursements were not up to par, and BMW changed that last year. That is an example of BMW addressing a dealer profitability issue.
How involved is the dealer council in manufacturer-driven programs and decisions that affect dealers?
On a scale of 1-10, I would have to say 10.
Is the involvement more or less than it has been in the past?
It's more. For example, in 2003, I met with Helmut Panke (CEO of BMW AG) on four separate occasions.
I would challenge any other dealer council chairman to say that he met with his chairman four times a year. This was arranged by Tom Purves (president and CEO of BMW of North America). I have unlimited access to Mr. Purves. I can call him any time. I have never asked for a meeting with Mr. Panke: Mr. Purves has arranged them at every opportunity. We have a healthy business relationship. We are not friends, but we see each other frequently, and there is a healthy respect. We don't always agree, but we always talk.
Tom Purves has never surprised the dealer council or the network, and we would hope he would say we never surprised him.
What is the No. 1 thing the factory doesn't understand about your customers?
The factory doesn't understand how value conscious the BMW customer is. We get a product from time to time that people will pay anything for, and the factory sees this as underpricing. When the Z8 first went on sale, buyers came and bought lots of them for a lot of money. Now it is hard to sell one. You have to sell for the life cycle, not the launch. Sometimes the factory doesn't really understand pricing. That said, when the inventory starts to back up, sometimes they cut production and other times they put on special programming. They do what they need to do.
What is the No. 1 thing the factory can do to help dealers?
Keep supply and demand in balance.
What are the dealer council's top concerns?
Profitability and maintaining it.
Recruiting and retention. If we are going to grow by 50 percent, we have to keep the people we have and get a lot of new people into the franchise. We need great salespeople, technical people and parts people. You can't grow a franchise by 50 percent with the existing people. BMW is helping. They have a great program with the military to recruit people who leave - like aircraft technicians. We have the BMW Step program, which takes young people from vocation schools and trains them to be BMW technicians. And we have the BMW University, which allows people to create a career ladder and follow it up.
We have to do a better job of telling our customers about the new level of product quality. BMW has addressed its quality issues and has to let people who had quality issues know that there is a new level of quality.
When did BMW quality slip?
We had some softness in quality during the last two to three years, and it has been addressed in spades.
Similar to the problems Mercedes-Benz has had with electronics?
Yes. They use the same suppliers, Bosch and Siemens.
Have you had problems with iDrive?
We didn't have quality issues, but there were software issues. Panke is now on the Microsoft board.
How satisfied are dealers with BMW?
I bet there isn't an automotive retailer out there that wouldn't want to have a BMW franchise. The only time it comes for sale is when people are retiring, not because they want to get out and do something else. We have exciting product, and we make money.
Are dealers making money on BMW new-car sales?
Yes. BMW has a unique business model - the added value is our bonus money, it creates profitability. Our margin is a 9 percent trading margin and 5 percent added value - 2.5 percent for customer satisfaction and 2.5 percent so your store looks like a BMW store. The added value is not negotiable, so it becomes retained margin and profit. Because of this, our new-car departments are profitable.
Do your dealers have the right product mix and overall marketing strategy to be successful?
Absolutely. We have two trucks, the X3 and X5, and we have the 3, 5, 7 and 6 series. We have the M-series performance brand.
We have a good parts and service business and great accessories. These are also a profitable part of the business - not just phones and CD changers - wheels and performance accessories. BMW is a performance brand, and because of that, people like to accessorize their cars with spoilers or aerodynamic kits.
Were BMW dealers profitable in 2003?
My sense is that out of 340 dealers, we probably have 10 that aren't making money, and they are small dealers.
How important is the Internet to BMW dealers? What could the factory do to help with this?
It's extremely important. It attempts to do away with borders. A customer in California can shop my inventory, and that is a good thing and a bad thing. It can create pressure on profitability, and yet it also can open up the world to any individual dealer. BMW is aware of this, and we are discussing a policy on how to deal with sales outside your area of influence.