BMW’s U.S. Chief Forecasts ‘Tough’ First Half

MONTEREY, CA – It’s been anything but a fast start for BMW of North America LLC so far in 2008, with U.S. sales slumping 22.4% in the year’s first month.

And the near-term outlook remains a bit stark, a top official says.

“January was a tough month,” admits BMW U.S. CEO Tom Purves. “I don’t expect the first six months of this year to be wonderful.”

But Purves is hopeful the second half will improve, along with the housing market and the rest of the economy.

“At the moment, we see everything neutral (for the first six months),” he says. “From July on, we’ll have an anticipation of a new leader (in the White House) that could be translated into greater consumer confidence.”

Even though January sales were down sharply, Purves, who steps aside as CEO on April 1, sees some positive signs. “We haven’t seen reduced showroom traffic,” he says.

But he admits delinquencies in the financial services area are up and orders for some of the more expensive cars are slowing down. Resale volumes also are slowing.

M3 provides low volumes but high margins.

BMW posted a 7% sales increase in 2007 in the U.S. and, despite the initial sluggish start, Purves isn’t ruling out further gains this year.

“In tough times, you’re better with new products,” he says, alluding to three new vehicles shown to the media here that Purves believes could help the auto maker grow and bring new customers to the BMW and Mini brands.

The high-powered M3, which goes on sale next month, won’t be a high-volume seller. M cars historically have represented only about 4% of a model’s sales.

But with the expectation the M3 will have an average transaction price in the low-$60,000 range, the car has the potential to earn good margins despite the unfavorable euro/dollar exchange.

The back-to-the-future 1-Series, which goes on sale a few weeks after the M3, is an attempt by BMW to rekindle the excitement of the 2002 that established the brand as a sports sedan benchmark in the 1970s.

While Purves declines to forecast 1-Series volume, he predicts it will pull in younger customers who could not otherwise afford a BMW. More than half of 1-Series buyers will be new to the brand, he says. “These will be customers who can’t afford a 3-Series or need a smaller car.”

Purves admits 1-Series margins will be under pressure from the weak dollar, but he contends the car will make money for the brand. “We would not sell the 1-Series if it were not profitable,” he says.

Rounding out the new trio is the Mini Clubman, a slightly bigger version of the popular small car that includes a rear passenger door on one side for easier access to the back seats.

Meanwhile, parent BMW AG is on a cost-reduction spree, Purves notes, but he doesn’t see that having a severe effect on operations in North America.

“We need to address manufacturing, engineering and central office costs,” he says, adding the U.S. arm already is appropriately lean.

“We reduced our head count by 110 persons to 970 employees,” he says. “If we took further cuts we would be cutting into muscle and bone.

“We are the leanest of luxury car manufacturers in the U.S.,” Purves adds. “We will sell more cars with the same number of people.”

The U.S. executive doesn’t see any advantage in importing more cars from South Africa, which already sends 8,000-11,000 3-Series sedans here annually. Cost advantages of South African-assembled cars are outweighed by longer transit time, making it less efficient to import cars from there than Germany.