BMW Relying on U.S. for "Future Growth"

It has been just over a year since Pieter de Waal joined BMW Motorrad USA. He replaced Arturo Pineiro, who took the position of president of BMW, Central and South America. De Waal has been with BMW Group since 1994, most recently heading worldwide sales and marketing for BMW Motorrad in Munich. Dealernews traveled to BMW’s North American headquarters in New Jersey to discuss what de Waal has done in the last year, and his plans for the future. Also joining the discussion was Todd Anderson, head of marketing, BMW Motorrad USA.

Dealernews: What has been going on at BMW Motorrad USA during the past year? DE WAAL: Everything. We’ve got a brand new team here, and I’ve come from Europe to America to see if this new team can turn things around. We … spent the past year learning about motorcycling here, and then drew up a strategy. We think we have a direction, and we think it’s the right direction. It’s a growth strategy. For BMW worldwide, we see the USA as the country where our future growth will come from, since Europe is largely saturated. So this is where we think things will happen, and this is where our worldwide focus is at the moment.

BMW Motorrad USA sold 11,839 units last year, up from 11,768 in 2007. DE WAAL: Yes. We were just a shade up from the previous year, which we’re very satisfied with in light of the economic downturn. It was business as usual in 2008 up until around the middle of the year. Then the economic collapse came. But while everybody else’s sales went down, we had a wonderful second half. And that trend is continuing into this year, with our first quarter up slightly compared to last year in an industry that’s down.

So what’s responsible for BMW being able to buck the trend? DE WAAL: There are many factors, but I like two of them. The first is the introduction of more affordable midsize motorcycles, specifically the F 800 GS and F 650 GS which we introduced in the middle of last year. The second is our dealer network. We’ve seen a great improvement in their efficiency and the number of motorcycles they are selling for us.

How have dealers factored into your planning? DE WAAL: We’ve spent lots of time with our dealers at various small meetings. Beginning last May, we basically took our whole dealer network and divided it into groups of about a dozen each, then visited with each of those groups to ask them what we should do or should not do to make them more effective in selling. Three things we learned were 1) a need to improve our relationship with them, 2) a need to make them more profitable, and 3) to give them greater financial resources, such as with flooring to help them with the burden of cash flow, or consumer financing to make the product more affordable to a potential buyer. As a consequence, those meetings have culminated in pretty much sweeping changes in the way we work with our dealers and our relationship with our dealers. Previously we may have been seen as a company that was perhaps not close to them, and now I think we may be seen as true partners with our dealers. The wonderful thing is, once we organized those meetings and acted on what we learned, we saw immediate changes in the sales, and that is why sales picked up in the second half of the year and continue to do so.

ANDERSON: They are giving us more staffing, more floor space, and a better share of their marketing spend. You could say that we’ve made them want to do business with us more than maybe they had in the past.

How does BMW Motorrad USA plan to stay in contact with its dealer network? DE WAAL: We now communicate to dealers with newsletters, which we didn’t before; we’ve worked to improve our bulletins; and we intend to go forward with that small group format in addition to what can be deemed a more conventional dealer conference. It is part of our ongoing future to talk to our dealers in the format that we’ve now developed, because it works for us.

ANDERSON: These guys are so used to going to these big dealer meetings where you put everyone in a big room, you get onstage, and there’s fireworks and dancing girls and flashing lights and lots and lots of PowerPoint. The thing is, what we learned was dealers didn’t care about that crap. What they care about is having an open discussion about their business. In retrospect, the smartest thing we did during these meeting was leave time for them to comment on anything they had on their minds. And we just sat there and listened. So when you do that ten times in a row, the patterns and key issues for these folks quickly emerge.

You have about 140 retailers in the U.S. Are you content with that number? DE WAAL: The number isn’t that important. BMW has a corporate-wide strategy that fewer dealers are better. In other words, we like fewer dealers but higher sales through those dealers. The more new bikes they push through their businesses, the higher their chances of being profitable. Therefore, we look at the ratio of how many new bikes are sold per dealer. By that I’m not implying that 140 is the right number. I don’t know what the right number is because I think the number changes with time and with circumstances. Now knowing how big this country really is, it’s a no-brainer that we have certain spots we need to fill.

ANDERSON: There are markets that just aren’t covered and need to be -- for instance, Jacksonville, Fla., where the nearest dealer is nearly 100 miles away. There are pockets around the country like that. But we’re not about numbers -- just about having the right coverage with the right dealers in the right spots, and making sure every dealer we have is as profitable as possible, because profitable dealers invest in the business and invest in the brand.

What percentage of your dealer network is multi-line? DE WAAL: Right around 65 percent are multi-line and around 35 percent are BMW-exclusive.

The economy has been tough for dealers of all sorts of vehicles. Did BMW lose dealers this year? DE WAAL: We kept the number the same, at right about 140, but we had a turnover of eight dealers. The majority of those were not economy-driven. In other words, we didn’t have a dealer which went belly-up and, therefore, we had to replace. It was dealers who by mutual agreement we decided we didn’t want to do business with anymore. I think, in terms of the economy, our dealers are less affected. However, having said that, we are very mindful that these are hard times for dealers.

What are the top three hurdles BMW Motorrad USA has to overcome to grow consumer sales? DE WAAL: We can probably list many more than three. But I would say they are: dealer development, a focus on the GSs, and to bring the new Superbike successfully into the U.S. market. The big GS makes up 35 percent of our volume worldwide and is by far our best-selling motorcycle. In this country that mix is much, much lower. So we think that if we can be as successful in the U.S. with the big GS as we are in other countries, there’ll be a huge potential for us.

The average age of a BMW buyer is 49. Has BMW been working to attract a younger customer DE WAAL: Yes, it is critically important for us to get younger people on BMWs. It’s not the fact that the average BMW rider is old – because old people are affluent, and there’s nothing wrong with that – but it is that they are getting older. So you have to bring new blood in. We’ve addressed it with the sport enduro, the new 650 and 800 twin series, and we feel the Superbike must do that in a big way.

Have the 800S and ST played a part in attracting that new customer? DE WAAL: In the context that you asked the question (What are the influences in our volume and our growth) I would not say that they are important. When we talk ST and others, those are just other products that we have.

Henrik von Kuenheim, GM of BMW Motorrad, has said that, in lieu of higher materials costs and a stronger Euro, product pricing has been a major issue in the past couple of years. DE WAAL: BMW is a premium manufacturer and we demand a premium price. However, it [pricing] is a concern. In the U.S. we have the lowest prices for BMW worldwide, and at the same time we make the lowest profit here. So that’s not a good situation at all for us. With the Euro’s increased value over the past few years, we’ve continuously been under pressure to push our prices to retain our profit margin.

How is BMW combating the price issue? DE WAAL: With the rise in materials costs, you’ve got to find sources where you can get your components at a better price. That is why we’ve embarked on a global sourcing strategy and now source at many of the same sources as our Japanese competitors. However, you have to design the motorcycles under this philosophy from the ground up in order to maximize these advantages. The Superbike, for instance, was designed with this philosophy, and that has allowed us to bring its cost down substantially. As a result, we are now in the position to bring the motorcycle to market much more competitively. Going forward, other new product will also be a part of this sourcing strategy, and therefore will allow us to be more competitive in terms of pricing.

What’s the forthcoming Superbike going to be priced at? ANDERSON: It won’t be a 1098 or RC8 kind of price, but much, much closer to where the Japanese are.

DE WAAL: We intend to take the four Japanese head-on. We did not intend to build a motorcycle like Ducati does or KTM does. We wanted to build a mainstream motorcycle for which we’ve got pretty ambitious volume plans. We think that motorcycle has the potential to maybe lift our volume by 20 to 25 percent in the short term.

What percentage of customers use BMW Financial? Is it an important aspect of your business? DE WAAL: At the moment about 34 percent. Financing has become a critical tool and we are very fortunate we’ve got BMW Bank. So we’re covered there, and plan to use it to its fullest extent. Plus, for the younger customers we are targeting, you’re not going to do the numbers if you don’t have the right financial products.

ANDERSON: I think it’s really important to note that, during the credit crunch, we never lost our ability to continue to finance motorcycles. In fact, our lending practices haven’t been tightened much. So, if you have reasonable credit, you can still buy and finance a BMW motorcycle.

Are sales promotions important for attracting BMW customers? ANDERSON: It’s common practice for other OEMs to use promotions to generate volume, but it’s not one of the things we do.

What are BMW Motorrad USA’s advertising/marketing plans? ANDERSON: We’ve actually been able to maintain a relatively good print presence this year, and we’re also making some significant investments in interactive advertising, particularly as we think about the new bikes and those younger customers. Finally, we’re really putting a lot of efforts into events and giving people opportunities to test-ride our bikes.

We heard there’s a fee for the demo trucks to show up at dealerships. ANDERSON: There is, but it’s a fraction of what it was a few years ago,and we greatly subsidize the costs for the dealer. We’ve recognized that the two trucks are tremendously valuable assets. So we expect to be at least 25 dealerships over the course of this season.

Finally, all of BMW’s motorcycles are built in Berlin. Is there enough capacity, and does the capacity have an impact on model availability here? DE WAAL: We have enough capacity – a capacity of about 120,000 motorcycles – so for the medium term Berlin can do it for us. Other manufacturers probably optimize their factory capacity – push out the units, therefore bringing unit cost as low as possible and then afterward look at the challenge of supply and demand. In terms of our product, we first look to matching supply and demand. We build on demand, and are very flexible. So if demand goes down, we can easily cut production irrespective of factory productivity. That implies a higher unit cost coming out of the factory, which probably reflects in our price.

ANDERSON: Other companies may build 10,000 of one model and decide to build 3,000 of those in red. That’s the choice. Our bikes are spec’d by the dealers. So if a BMW dealer wants to order a K1300S, he’s got a choice of color, ABS, and then eight or 10 other options on the bike. And so our production is all geared around building what a specific dealer wants for a specific bike – essentially built to order and a very different manufacturing philosophy and one that demands a lot of flexibility in the plant.