BMW's upper management tends to be more tight-lipped than treasure hunters. As a result, Wall Street sees the automaker's executive culture as closed-minded, overly proud and parochial. The Financial Times Deutschland (FTD) and the Financial Times report that Bimmer's boss has broken his vow of silence, trying to soothe the markets regarding the automaker's poor share performance. At a conference in London yesterday, Reithofer outlined BMW's plan to increase its return on capital to 26 percent and its return on sales to eight to ten percent by 2012. The propeller people promise to reduce R&D expenditures from 6.1 percent of sales to five percent, save millions on purchasing and cut 8k jobs. No one was buying it. One analyst said, "the market in its current state is not in any mood to buy cheques dated to 2012". Morgan Stanley said in a research note: "The company provided incremental detail on its cost- cutting efforts, but it offered precious little in terms of specific figures or intermediate milestones." And while Reithofer was speaking, BMW's share price slid five percent, on a market-friendly day. Reithofer left the conference after one hour, saying he felt sick, and canceled further appearances in New York and Boston. By day's end, BMW's share price had lost 2.8 percent, equivalent to €609 million.
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No wonder he felt sick.
Did you have nice day at the office, Norbert? No? Here, have some chicken-spaetzle soup.
Cutting R&D by 16% seems like the absolute best way to improve iDrive.
Not that I’ going to cry over BMW’s share performance, but I do find really sad that markets’ short-termism continues to get worse. So, I assume BMW should instead fire half its engineers immediately, stop testing of its new models, and fire all its older, experienced workers to replace them with lower-paid ones?
Gee, that’s going to do wonders for the quality of the cars….
And then what would analysts drive?
By the way, I though BMW was a private company?!
A plan to boost return on capital to 26%? Wow, the oil companies need to switch to burning oil, not producing it.
I hate the fact that my favourite brand is going this direction. They are increasingly just blindly making the same mistakes Mercedes made a decade or so ago.
And that Reithofer increasingly seems to be on the same level as Wagoner when it comes to knowledge abot cars.
Decreasing R&D and product costs? Wake up, your BMW, the only thing you have to do is spend as much money as possible on R&D and good materials, make a nice product, let the brand image do the rest in terms of profit margin and your good to go till the end of the world.
Really annoyed by this, so I’m glad the market punishes these measures, albeit probably for the wrong reasons
AKM: the Quandt family owns about 46% of BMW, but you are free to purchase the rest.
Cutting R&D by 16% seems like the absolute best way to improve iDrive.
Extending that a little, removing it from their vehicles should reduce production costs, helping them there too.
Sounds like he has already disclosed more of his “turnaround plan” than Rick Waggoner ever has. Where are these guys to badger RW?
If this continues I guarantee you the family will be searching the couch cushions for enough change to buy back another 5% so they don’t have to be questioned by a bunch of “analysts” whose only accomplishment is to collect a check for criticizing others.
AKM I thought the same thing about letting Wallstreet dictate the companies direction. Short term thinking is bad, just look at Detroit. Is everyone on Wallstreet trying to become a millionare in a single quarter?
I thought BMW made a ton of money last year, why do they need a turnaround? Stay nimble for future economic fluctuations yes but BMW isn’t failing or something.
Redbarchetta, JJ, AKM, you guys have a point.
For the longest time, BMW’s strong point was that they did not listen to Wall Street. (They didn’t have to, because the Quandts had their eyes on the long term). Heck, Wall Street analysts throughout the 1970s and 1980s said BMW was too small to survive independently, and should merge with somebody like GM.
Now, BMW is listening to analysts — but their investor-relations activities are half-assed. The worst of two worlds, so to say.
Redbarchetta: “Is everyone on Wallstreet trying to become a millionare in a single quarter?”
Yes.
In a related story, The Wall Street Journal reports that analysts are predicting a strong buy position on BMW after the expected dismissal of Chris “Axis of White Power” Bangle this year. Further optimistic news includes the return of the 5 Series E39 body style for the next generation production run. Said one TTAC commentator, “I can only hope that the blacklisting of TTAC also ends. Vagina”! Popular website TTAC was banned by BMW corporate flunkies several years ago, due to what they called “a naughty word”.
Automaker: Our plan is to slash R&D and employees, cheapen the hell out of our materials, and decontent, decontent, decontent.
Wall Street: Sounds great, but you really haven’t taken it far enough, I’m going to issue a sell recommendation for your stock. Now, if you’ll excuse me I have to go hype up the stock of a company that produces nothing, has no intellectual property claims to anything, has never posted a profit, and has no guaranteed source of revenue.
Having seen up close and personal a road-going version of the X3, I can attest to why BMW is experiencing problems. Geez, what in the world are they thinking? I sorely miss my E-30…
hmm…E30.
My friend and I happened to drive a 1991 E30 325i the other day. Although it was unrefined and seemed a little slow, we both thought it was more fun to drive, and prefered the small size and excellent vision, to his current generation 330. Yikes.
Johnny Canada Chris Bangle is getting booted out the door? Is this true or just speculation or are you just joking?
what? wait a minute…I missed that! Bangle is on the way out? Seriously? Man, is that good news.
Humor Alert.
@ Landcrusher
A guy can dream, right ?
Update! USA Today reports that Chris Bangle has resigned today to join Swedish pop super group Abba for their 2008 world tour. BMW stock price soared at the closing bell.
Ok, so let me understand this, the financial geneiuses think BMW (A high-end auto maker) should actually cut its quality to stay competitive in this highly competitive business while other up and coming players are improving the quality of their products and gaining marketshare.
I guess these guys are planning buying up Toyota stock for the long term and use the better short term earnings of BMW to fund it. Are these guys truly that clueless to not understand that the entire German auto industry has been taking MAJOR hits lately due to falling quality. Hell for that matter trading quality for profit has doomed the US auto industry.
VW has already turned into a German version of GM in the 1980s. Mercedes is trying its best to be Cadillac of the 1970s. Porsche has been milking what is essentailly the same chassis for over a decade now (should we put the engine in front or behind the rear axle). Now BMW needs to make Wall St. happy? I thought it was the cars that made these folks smile!
You know I guess with over 30 BILLION in bonuses this year on Wall St BMWs are now falling below the status line for the Masters of the Universe, so f$%k em!
They didn’t say cut quality, they said cut costs.
In my company in 2003 we counseled out 8 out of 12 people in one cube row of accountants, which churned out huge batches of things consumed inside their little group but not outside their group (i.e. useless things), and production by the remnant 4 of things consumed outside the group increased as well as quality of the output. Further, they had newfound spare time to take on more real work. This was good cost cutting.
You get the same effect in any production environment, whether crunching numbers and making reports, or crunching tin and CAD output.
+1 on the E30.
Unless BMW needs to raise cash it can safely ignore Wall Street and just look after the business. Take care of business well and the stock will do fine. Trying to push on the stock price instead of simply working the business is what gets so many managers into trouble.
Wall Street got you worried? Just ignore them and do the job.
“You get the same effect in any production environment, whether crunching numbers and making reports, or crunching tin and CAD output.”
Uh, only in really badly run companies. In many places getting rid of 8 out of 12 professionals has disastrous results. Do you really think Toyota would be a better company if they fired 50% of their white collar staff?