Thread: Future BMW X4?
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      06-04-2010, 07:49 AM   #29
auggiem3's Avatar

Drives: e92 M3 / former e46 M3 owner
Join Date: Jan 2009
Location: Washington, DC

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Originally Posted by TsunamiFury View Post
I think you misread my post or have trouble with comprehension. I implied that the m3 WAS a loss leader obviously funded by the money made by vehicles like the x6, which so many self proclaimed purists trash here.

The M3 has been called the greatest vehicle in productions by a number of publications including Car & Driver, KBB, and a few others.

As to your other insulting comment, I do think before I write as I am a professional journalist who has been published in many major American national papers and magazines.
I think you both make some valid points but I'm siding, in general, with Tsunami on this one.

Empirically, many other car companies openly acknowledge the existence of loss leader performance cars. Take the Bugatti Veyron for example. Even at over a $1 million euro selling price, the revenue covers the direct cost to make one but in no way covers the pro rata share of indirect (R&D expenses) incurred per unit. The business reason? Its re-establishing a brand with technology, marketing and exclusivity that Volkswagen can later leverage to sell less capable, less costly sports cars at a higher premium.

Now move on to racing programs. Ferrari's racing program nearly bankrupt the company during many pre-Fiat years. Why? Because motorsports research and development and track success are expensive and Ferrari didn't pursue the Ford production mentality (ie. make the everyman's car). In fact, Enzo despised building road cars but considered it a necessary evil to pursue his real passion - racing. Hence the solid brand image of Ferrari.

So what does this mean for BMW? It means they subsidize the cost of M and performance models with other less capable units. The M cars and the 7 series serve as the flagships for BMW's two primary demographics - wealthy folks and performance oriented drivers. Even though BMW does not release profitability figures by division, the M subsidy is evident in their financial reporting when they disclose that the M division has the lowest profit margin per car.

Consider porsche: the company, with the 911, maintains the highest profit per car in the auto industry. What does this fact reveal? That porsche has a good product that they rarely up-engineer or invest in (compared to other manufacturers) and, thanks to that, they have a lower cost structure and a higher net income for the 911.

IMO I'd much rather buy the car that "loss leads" or provides "lower margins" b/c, inherent in that logic, I'm getting more for the money under the assumption that the company is good at its core competency. That philosophy certainly doesn't imply that I'd buy a POS just because it costs less to buy than to produce, but given the quality, engineering and fun you get out of most M division products, I think they've got the right idea (even in light of the separate arguments around evolution of the M brand, XM cars, weight/power and Forced Induction/NA engines).