Where will BMW shares go this year?

BMW Regional Sales Mix 2004 - 2009 

As an ex-BMW staffer and consultant, its hard to grasp that BMW is not a stock market darling at the moment. Its languishing down there with VW and Porsche. So what does the financial community see that I don’t?

Perhaps they reacted too strongly to 2008’s $1BN US expansion programme, which saw $750MN spent increasing the South Carolina plant capacity by 160,000 units. It cuts shipping costs but, with US volumes on a 5 year falling trend and volume down 20% in 2009, it was, at the very least, poorly timed. Or maybe its concern about its brand equity compared to an unencumbered Daimler and a dynamic VW.  BMW’s limited diversification — the group focuses only on luxury performance cars – unlike VW, who cover many more segments, or Daimler, with its strong truck and bus business to complement cars. It may be that financial analysts think that BMW’s legendary cash flow strength may not be advantage enough, especially if another player, such as AUDI or Lexus,  tries harder for its niche.

But it might be a combination of smaller factors. Some might be concerned for the threatened impact of dropping its straight six for V6 engines, in order to meet emissions and safety standards. Or, the replacement of Helmut Panke by Norbert Reithofer a couple of years ago. Although he is an engineer, outsiders might think the company better served by a financial or marketing expert.

But, most likely it was the $1BN operating loss in Q4 2008, coupled with a 30% drop in unit volume and an 18% drop in turnover. And that loss was helped by the fact that BMW went into 2008 without the massive inventories – and stock losses  – carried by its competitors. The quarter’s loss meant a full-year net profit drop of 90% while the sales fall was the first fall since 1993. Investors may have simply convinced themselves that BMW is impervious to external events. Sadly, no firm is. The fallout was a downgrading by both Nomura and RBS in April 2009.

BMW will almost certainly re-bound, but this time the fight back will a significant struggle needing a string of successful new models. It all depends on Mr. Reithofer.

BMW Cash Reserves and Dividend Pay Out 2005 - 2008