Bmw of North America

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  • Topic: BMW, BMW X5, BMW X3
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  • Published : October 9, 2012
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TB0301

Dmitry Alenuskin Andreas Schotter

BMW of North America: Dream It. Build It. Drive It.
Any customer can have a car painted any color that he wants so long as it is black. Henry Ford

Introduction
In early January 2012, Joseph Wierda, BMW’s X3 Product Manager, reviewed the latest sales numbers of the popular X3 Series compact SUV. He was, in particular, interested in the effects of BMW’s customization program called “Dream It. Build It. Drive It.” on both unit sales and overall profitability. This new integrated sales and marketing program allowed customers to create a fully customized BMW X3 SUV and have it delivered to their driveway in only a few weeks. The program scored some important points with the media. For example, Martha Stewart, a U.S. TV personality, customized her X3 live on her popular show called The Martha Stewart Show. Just two years earlier, in 2009, the idea of the customization program came at a time when the global financial crisis had hit consumers hard, and most households were putting large ticket item purchases on hold. During the same period, fuel prices reached $4 per gallon. Consequently, BMW’s North American overall sales had plummeted by 30% compared to 2008, and SUV sales were down a staggering 55%. The new customization program was a departure from the traditional North American car purchasing model, where consumers were accustomed to buying a car and driving it off the dealership’s lot right away, after typically receiving some generous discounts or other incentives. Wierda wondered if the program should be extended across all BMW product lines and, if so, what this meant for the regional and global manufacturing strategy, sales and distribution strategy, and the overall competitive positioning of BMW in North America. He needed to make up his mind before the next management meeting at the end of the month where he had to present the proposal to Ludwig Willisch, the recently appointed CEO of BMW North America. This proposal would have far-reaching internal and external effects.

The U.S. Automotive Industry
The automotive industry had traditionally been the largest manufacturing sector in the United States, averaging about 3.6% of total GDP. Sales data for new cars in America represented one of the key economic indicators. In 2011, the U.S. auto industry was estimated to be a $500 billion industry, employing more than eight million people. Just three years earlier, in December 2008, American auto sales dropped by 37% compared to the year before as a result of the 2007/08 global financial crisis. During the same month, the “Big Three” auto companies (General Motors, Ford Motor Company, and Chrysler) applied for emergency loans totaling $34 billion combined. The argument was that these loans would help avoid laying off up to three million people. In January 2009, the U.S. Congress approved this unprecedented emergency bailout. Most of the money was used to provide consumer loans and new consumer incentive programs in order to stimulate sales. Copyright © 2012 Thunderbird School of Global Management. All rights reserved. This case was prepared by Dmitry Alenuskin and Andreas Schotter for the purpose of classroom discussion only, and not to indicate either effective or ineffective management.

In exchange for government loans, the “Big Three” promised to consolidate operations and accelerate production of more fuel-efficient (greener) vehicles. Most of the loans were scheduled for cash repayment, but some of the debt was converted into government-owned equity. Many legendary brands subsequently disappeared, including Pontiac, Mercury, Saturn, and Hummer. Germany’s Daimler AG announced that it would discontinue its ultra-luxury Maybach brand. The bankruptcy of Chrysler in May 2009, and its subsequent acquisition by Fiat Group of Italy, opened a new era of foreign ownership in the U.S. automotive industry. In 2010/11, the U.S. auto market showed some signs of recovery. While...
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