April 2009 ISSUE
How The Wheels Are Turning
In our earlier report on the outlook for the Malaysian automotive industry we considered what was in store for the local automotive market in 2009. The Malaysian Rating Corporation Bhd (MARC) had revised downward their gross domestic product (GDP) growthestimate. This together with a look at the situation around the world prompted the Malaysian Automotive Association (MAA) to announce a 12.4 percent drop in total industry volume (TIV) to 480,000 units contrasting with 548,118 in 2008 representing a 12.5 percent growth for that year.
The world’s automotive market gets worse
Globally things continue to worsen. According to the China Association of Automobile Manufacturers, 735,000 new cars were sold in January, a 14.4 percent reduction from 860,000 sold in January 2008. Last year sales volume grew by 6.7 percent to 9.38 million units, the first time auto sales growth has fallen below 10 percent in China since 1999. The French government is forking out a US$9.8 billion loan to their local auto industry. With a 58 percent drop in new car production compared to January a year ago, British auto industry officials have started to call for government help.
In America auto sales dropped 37 percent, the biggest decline in 26 years. GM, the world’s largest automaker, has said it needs a total of $30 billion in U.S. government loans to avoid bankruptcy. The company was also looking for $6 billion in support from the governments of Canada, Germany, Britain, Sweden and Thailand to provide liquidity for its overseas operations and would be cutting 47,000 jobs worldwide, 26,000 of which were outside the U. S. And the automaker was looking to close five more factoriesin America.
A further decline in Malaysia’s GDP and a drop in January car sales
Trade figures for the country released in February suggest a reality more severe than was originally expected. Exports fell 14.9 percent year-on-year while imports fell 23.1 percent, the biggest drop since the third quarter of 2001, raising concerns of a sharper decline in global demand and further affecting the country’s GDP. January sales figures for passenger and commercial vehicles are in and we see a 17.5 percent drop compared to a year ago, attributed, according to the MAA, to a decline in consumer sentiment and confidence and a shorter working month because of the recent lunar New Year celebrations. The MAA did not expect things to improve in February. January’s sales volume contracted by 8,010 units to 37,801 compared with 45,811 a year ago and was 5.1 percent lower month-on-month according to a statement from the MAA. The impact may well have been worse but for deliveries of several new models.
Things could get worse… or maybe they are already worse than they seem
According to MAA President Datuk Aishah Ahmad, the actual sales impact had yet to be experienced. On cost management, she said, among the intitatives taken are head count freezes and careful monitoring of new orders with principals to prevent overstocking. She also noted that there had been no voluntary separation schemes (VSS) announced so far and suggested further cost trimming by motor companies if things got worse before resorting to VSS.
BMW Malaysia’s answer to 2009
In early February managing director Geoffrey Briscoe sounded positive about BMW Malaysia’s performance in 2009. The key, according to him, was to provide the right cars for the marketplace. He also felt that the luxury segment would be less affected by the economic situation than the volume-based mass car segment. Does the brand that calls itself The Ultimate Driving Machine have the ultimate take on how to weather the latest storm sweeping across the world? MARKETING made contact with sales & marketing director, Michael Lerch for BMW’s take on the situation.
Under the circumstances can players in the industry hold to their traditional target market definitions and segmentations or will they need to rethink how they look at their current users and potential new purchasers?
BMW: BMW is firmly positioned and focused in the premium segment and for several years, has successfully maintained its stature as the world’s number one luxury carmaker. Within the premium segment, we further provide a variety of options to all the sub-segments of our target market by demographics and psychographics and yet, we will never waver from the premium positioning
and focus.
In this time of economic crisis, we remain focused on measures that strengthen this compelling BMW premium offering. For example, we closed 2008 with the launch of BMW Premium Selection, a used car programme that for the first time in the premium segment offers benefits and features fully backed by a principal manufacturer. In early 2008, we also launched the BMW White Card, a loyalty programme that bundles and adds on to existing BMW offers to create a consolidated customer touch point. Different from mass-market brands that may rely on discounts to stimulate showroom traffic, adding too much cash or financing incentives could damage the residual values that are pivotal in winning buyers in the premium automotive segment.
At the same time, the trend towards energy efficiency and lower emission is irreversible. At BMW, we address these issues without compromising performance under the EfficientDynamics initiative.
Product and service development and innovation have been key drivers of business growth for the industry. Will these now receive less emphasis than before? If not, what shape will they need to take in order for marques to be relevant to car buyers in the year ahead and will industry players need to restructure or reorganize themselves?
BMW: BMW began a new approach called Number One Strategy long before recent economic events. A host of efficiency improvement measures are being implemented at great pace on both the cost and the revenues side. We are employing sharper focus on profitability, and Return On Capital. 2009 is the year of BMW’s EfficientDynamics – which is our overriding philosophy on genuine fuel savings and lower emission under practical driving conditions without compromising performance. Relevant to the world’s major concerns such as sustainability and economic stability, EfficientDynamics is our top priority.
How will the possibility of longer periods between replacement car purchases or lower cash outlays for purchases affect pricing strategy and car segment emphasis and what will you do to protect your users and new purchasers and grow market share?
BMW: Pricing strategy takes into account a confluence of factors: brand desirability and loyalty competitive pressures and market dynamics, amongst others. The key is to address competitive activities and market dynamics such as premium valuation and residual value, and yet remain consistent to what the brand
stands for.
The premium segment is probably less affected by any longer replacement cycles and lower cash outlay, but any adjustment we make to address such market dynamics should not involve a strategic brand and marketing shift such as pricing strategy and segmentation.
Are expansion plans going to be postponed or does the current reduction in property prices and rentals present an opportunity to increase your presence in new locations?
BMW: The premium market targets only about three per cent of the total industry volume. Hence, our channel selection has to be market and geographically strategic.
Strategic dealership network expansion is still pivotal to our growth. At the height of the global economic meltdown, we launched our first dealership in Kota Kinabalu, Sabah in November 2008. In the next year ahead, we have three new showrooms to launch, a new Premium Selection service and an entirely new Dealership.
Our strategy for every dealership expansion is always based on a two-pronged approach: Choice and Service. With this understanding, we cater to our customers’ needs by expanding our product line-up, offering Malaysians a wider range and variety to choose from, and improving the entire car ownership cycle experience .
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