BMW Earnings: Investment Despite Economy

BMW continues to invest in people and technology, even in the face of trouble in its home market of Europe and concerns that the balance of the world’s large economies may have begun to wobble as well. BMW is unique among the massive auto manufacturers, and it should be. The company has, by luck to some extent, found itself in the sweet spot of the markets it serves. Even though it is not as big as many of its competitors, it holds several advantages that likely will allow it to stay successful. Those advantages, along with management’s commitment to research and development, have helped the BMW brand value to reach a remarkable level.

BMW announced earnings for its latest quarter. Second-quarter revenues rose by 7.3% to €19.2 billion from €17.9 billion in the comparable quarter last year. Net profits dropped 28.1% to €1.28 billion from a 2011 number of €1.78 billion. Unit sales rose 5.4% to 475,011. In its report, company management stated:

Higher personnel costs, increased expenditure on development and new technologies, intense market competition and the higher baseline of the previous year’s record second-quarter earnings all contributed to the lower earnings figures in 2012.

BMW’s position in the U.S. market, the second largest in the world after China, reflects the reasons for its global success. Through the first seven months of the year, the Germany company sold 126,504 cars and light trucks, an increase of 11.3%. Sales of Mercedes, which are built by large transportation conglomerate Daimler, were 137,897 for the same period, and sales of Volkswagen luxury brand Audi were 65,158. BMW’s share of the American luxury market is impressive, given the size of its parent. The fact of the matter is that good markets for luxury brands still exist, as the wealthy in many countries can afford to continue to spend on high-ticket items. The BMW brand has allowed it to take a lion’s share of these customers.

BMW has done something that many other car companies have not. It has built a brand that grows in stature almost every year. In the carefully followed annual survey of global brand valuations by BrandZ, BMW’s valuation was $24.6 billion, up 10% from 2011 to 2012. It was ahead of Toyota (NYSE: TM), Mercedes, Honda (NYSE: HMC) and Volkswagen. Such an extraordinary performance traces its roots to BMW’s ongoing decision to “increased expenditure on development and new technologies” — even in the headwinds of a recession.

Douglas A. McIntyre