BMW Expanding Its Luxury Brand

BMW 5 Series
BMW 5 Series

With sales picking up around the world, and especially in China, BMW is revving up growth expectations.

For the German luxury auto maker, we are in a expansion cycle for the entire industry, but especially luxury auto brands.

Here's the change in BMW guidance: global sales will top 1.6 million (previous guidance 1.5 million) with earnings before interest and taxes above 10% of revenue instead of 8%.

It's a revision that was greater than many analysts' expectations.

So what's behind it? Two things.

First, BMW is in the heart of expanding demand for luxury cars and SUV's. And in this case, the red hot market to watch is China. In that country, sales continue to expand at a healthy clip. Even more encouraging for BMW and the other luxury car companies is the fact China's luxury penetration of 3% is well below the penetration in Europe (18%) or the U.S. (13%). In other words, there's plenty of room for growth.

Second, BMW as a brand is better focused than it has been in several years. One of the complaints about BMW a few years ago was that the company lost its focus as it rapidly expanded its line-up.

It is the type of problem all auto makers face when they add models and lines. It was getting dinged by critics for having quality slipping. But in the last couple of years, BMW has tightened up its operations. Perhaps reflecting a company that is more comfortable with its growth than just a few years ago.

BMW's goal is to have sales reach $2 million annually by 2020. An ambitious but attainable goal, especially as the company ramps up development of its new electric vehicle "i" sub brand. The challenge for BMW is to better manage this expansion than it has handled in the during past periods of growth.


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