Product, people investment key to BMW success

BMW had a banner year in 2019, besting German rival Mercedes-Benz to take the luxury sales crown. Munich-based BMW delivered 324,826 vehicles in the U.S. last year, up 4.4 percent.

The X7 large crossover was a "huge hit" for the year, BMW National Dealer Forum Chairman Patrick Womack, 55, told Automotive News.

"In my market, it's the second best-selling BMW vehicle after the X5," said Womack, general manager of Laurel BMW of Westmont in suburban Chicago.

BMW's long-awaited X7 arrived in the first quarter of 2019 with three-row seating for seven passengers.

"The X7 was something missing in the lineup for 10 years plus," Womack said. "Anybody who was looking for a larger truck with three rows ... we would lose them to Mercedes."

Womack said dealers played a role in the X7's market success — helping the vehicle's designers and engineers adapt the crossover to U.S. market tastes.

Looking at the year ahead, Womack spoke with Staff Reporter Urvaksh Karkaria about the products, challenges and opportunities BMW dealers should expect. Here are edited excerpts.

Q: What are the top issues on the dealer board's agenda in 2020?

A: Overall, we are in a better place with BMW senior management than any recent time in history. We will still have many things to work on.

Loaner-car expense and liability exposure continues to be a strain on the profitability of BMW dealers. It's one of the top expenses in the dealership. The reimbursement from the manufacturer for the daily rentals hasn't increased in many years. The cars are more expensive and depreciating faster. We are bearing a lot of that cost.

We've got some really good momentum with our trucks. To keep that going, we need to invest in marketing to get the word out about the product.

We are also investing in our people more in 2020 and are looking at an industry-leading retention and rewards program. We want to make BMW top of mind for any potential candidate and reward those who have stayed with us.

BMW saw an improvement in the dealer satisfaction survey last year. What would you attribute that to?

Communication. We read every written comment on the NADA Dealer Attitude survey as a forum, and even did some of our own research. That became our playbook. Without BMW listening and wanting to work with us, this result could not have happened.

BMW and its dealers are developing a dealer performance-measuring system called Market of One. What can you tell us about it?

Market of One is a way to measure metrics that are important to the manufacturer, such as sales efficiency, service retention and sales volume. We want to find consensus, build agreement and remove the things outside dealer control that could unfairly affect dealer performance scores. This project, which dealers are helping fund, could be the biggest win for both sides in decades.

What are the most anticipated launches for 2020, and why?

The 2-series Gran Coupe is important because it could serve as a conquest vehicle, if BMW advertises it correctly. If properly equipped, the Gran Coupe should lease for close to what customers are coming out of BMW 320i xDrive leases from. The four-cylinder 3-series model has leased very inexpensively over the last few years and was removed from the model lineup last year. Those customers have been defecting from the brand because everything we have is more expensive.

What's missing in the BMW product lineup?

There is a place for a luxury wagon with great BMW performance in the U.S. market. The Europeans get to enjoy that great product, and we need to compete with Audi and other brands that are in our marketplace.

What are the major headwinds for dealers in 2020?

There's a lot of influence in the marketplace by disruptors like Carvana, who aren't making any money but changing the way people think you should do business. As the economy is doing so well, we have a lot of people investing in new technologies and even cars. We have a strong brand with the best people in the business and will adapt and figure it out.

What explains BMW's strong sales performance last year?

Great product is, and always will be, No. 1. We have the best [crossovers] in the marketplace with the X3, X5 and X7 leading the volume. We worked with BMW on product mix between sedans and trucks. BMW brought to the U.S. more of what customers wanted. There's a lot less inventory laying around.

But, we are not counting Mercedes-Benz down for long. Over the next two years there will be strong competition. However, as long as BMW continues to listen to dealers, we will be better partners and help hold the [luxury sales] crown.

What is the future of the sedan business in the U.S.?

The sedan is not dead by any means. There may have been overproduction in the past in relation to the consumer demand, which then resulted in incentives to move the product. We are working hard to align the proper production with the demand.

BMW's heart and soul model, the 3 series, is facing competition from the Tesla Model 3. How much of a problem is Tesla going to be for German luxury brands?

In my eyes, the 3 series is not a Tesla competitor. BMW is developing a strong competitor in the i4, and we are looking forward to that exciting product.

BMW has a great dealer network and the fact that our people work hard every day to help our customers makes us stronger in the long run. I will give (Tesla CEO) Elon Musk credit as he has been able to exploit weakness in the traditional (dealer) business model and found success. With the right product, BMW will bring many of these people back.

New-car margins are getting squeezed throughout the industry. How are new-vehicle sales affecting dealerships' profitability?

New-car departments are losing propositions with most brands and we all have to fight to regain profitability. We hope to do so through realistic production numbers, proper product for the marketplace and more desirable mid-life-cycle face-lifts to keep consumers interested.

What steps do dealers support in 2020 to help increase store profitability?

We are looking at loaner expense and margin on financial services products. We are also investing $10 million this year in technology and equipment to boost service-technician efficiency by 35 percent. That will allow the techs to do more work and make everybody more money.

Is there anything new BMW is doing in 2020 on off-lease vehicles or with its leasing program?

The number of off-lease cars drops significantly in 2020, so we're looking at ways to enhance the CPO program. We could also spend some extra money in advertising CPO.

Are production and inventory levels in line with demand?

We had too much supply of 2018 model year vehicles. So, we were selling them for less, which hurt profitability. The manufacturer was getting squeezed by having to add incentives to make things move. The model mix was maybe a little bit off in 2018.

It's gotten better in 2019 with almost 50-50 truck and car. There's not a lot of dealers yelling and screaming about 2019 model-year inventory on the ground.

Has BMW made any changes to dealership bonus programs? How are dealers responding?

Our targets are much more in line with reality, and thus more dealers are hitting their objectives in a much healthier way.

BMW is expected to launch three EVs in 2021, part of a broader electrification strategy. Is the U.S. market ready for these vehicles, or are automakers pushing EVs mostly to meet emissions targets in China and Europe?

I think EVs are here to stay. I don't think we'll go completely electric in as quick a time as some people think. Most of the demand in the U.S. has been driven by incentives based on where you live, as well as access to HOV lanes. So, I don't think we have to throw all of our eggs in the [EV] basket in the U.S. market right now, because I don't think we are ready.

However, BMW is a global company. They have to build cars not just for the U.S., but also for China and Europe where emissions regulation is driving rapid EV adoption.

Is BMW offering financial support for investments that dealers need to make in selling and servicing electric vehicles?

While some manufacturers are helping their dealers with the cost of installing new charging stations, BMW dealers have been responsible for making that infrastructure investment. Given the investment needed in these vehicles, coupled with tight margins, I feel BMW should financially partner with dealers.

Do you think vehicle subscriptions are a viable model?

Most of these subscription programs appear to be failing across the country. It doesn't make financial sense given how quickly cars depreciate in the first 18 months. In America, people love to own their cars. In densely populated metro markets where it's really expensive to own and park a car, subscriptions might work.

Has there been any change in facility upgrade demands by BMW? Have the demands gotten any easier?

BMW has become more flexible in their demands, in response to dealer feedback on the NADA Dealer Attitude survey. Early adopters of the new store design don't have to update their facility for 15 years. BMW has also relaxed the rules for the dealers that are building now.

Has BMW changed requirements regarding online reviews, and how do they factor into dealership success?

I know some brands are going to online reviews for CSI; we are not changing yet. Online reviews are important to dealer success. The consumer has changed their buying habits. There's more time spent researching products and services online. Car buyers aren't just researching models online — but also which dealership and salesperson to buy from. That's where online reviews mean everything. Salespeople have to brand themselves. We have employees who get asked for, because they got good online reviews.

What is BMW doing to direct dealers on the digital retailing front, particularly with regard to omnichannel capabilities? What kind of help do dealers want from the automaker in this area?

We have to listen to our customers and provide what they want and not what a vendor or manufacturer thinks they want. Everyone keeps pointing their fingers at the dealer as the one responsible for the confusion in the process, but I feel the manufacturer needs to look in the mirror here. And this is not directed at just BMW.

Dealers want a transparent process for their customers, but stair-step and market-based programs muddy the ability to present a clear online pricing experience.

How are co-op advertising programs between the dealers and automakers changing in the digital marketing era? Are dealers increasingly open to giving up co-op money to go with a vendor different from that prescribed by the automaker?

BMW allows vendors to be vetted as long as they hold up to our brand standards, so I don't see BMW dealers giving up co-op money to choose a different digital vendor.