BMW business model crunches gears as models expand, profit falls Essay
BMW business model crunches gears as models expand, profit falls
This article discusses the recent changes in sales, earnings, and profits of BMW, the German based manufacturer of luxury automobiles. The article opens by proposing five market scenarios that may affect the way BMW conducts business and earns revenue. The scenarios include changes in laws, consumer desires, auto financing availability, political climate, and consumer buying habits. Recently, earnings have declined by 63 percent and further losses are anticipated.
Company executives and industry analysts note that earnings on certain models has declined while sales have increased over a 10 year period. The change is attributed to a lower demand for the high end performance cars that have been BMW’s core product. In response BMW has sold more smaller less expensive cars as a way to respond to changing market demands. This article demonstrates several factors that affect a company’s profitability: competition in the market, consumer demand and habits, and the company business model.
In the case of BMW these changes were prompted by legislation regarding gas prices and environmental concerns which changed consumers’ driving and car buying habits. BMW responded to this change by switching to a different line of cars including SUVs and compact cars. They sold more units at lower prices compromising the overall profitability of the company instead of conforming their high performance base model to be fuel efficient. “Intel’s shock warning sounds alarm for tech sector” This article discusses the issues that led Intel to cut its revenue and profit forecasts for upcoming periods.
Intel has reduced profit forecasts and their stock prices have declined by seven percent. Other technology companies including Microsoft, which uses Intel microchips, and competitors such as National Semiconductor Corp have also lowered their profit forecasts. These reports have spread fear across the industry that consumer spending will continue to decline. Intel also cited the credit crisis as an issue affecting demand for products and the ability of suppliers to provide services that Intel needs in its manufacturing process.
Industry analysts note that Intel’s slow performance is normally indicative of early spring results, but do not speculate on how the current outlook may affect the coming spring results. This article demonstrates how one factor can have an adverse and possibly unnecessary negative affect on profitability: speculation. As mentioned in the article speculation alone caused stock prices to tumble. Investors assume that profits will be low and will either divest or not further invest affecting the company’s ability to finance production operations.
Suppliers assume the worst and make it difficult for the company to obtain materials they need to manufacture and get chips to the market. End users like Hewlett Packard and Microsoft may purchase chips from competitors on the assumption that Intel will not be able to deliver. In other words, a grim forecast can become a self fulfilling prophecy. The difference in the two articles is that the BMW article demonstrates a verifiable and valid set of issues that can and do affect the profitability of the company and the automobile industry as a whole.
The Intel article demonstrates how speculation can affect consumer confidence in a way that can reduce profitability. BMW has analyzed the real issues that have reduced their profitability and are in a position to change their business model to respond to the situations identified in the article. Intel, on the other hand, has subjected itself to speculation and must wait to see how the market environment plays out. They can change their forecast but that is not a solid guarantee that consumers will respond positively to the change.
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 7 November 2016
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