BMW has defied those who diagnosed it as suffering from Boiling Frog Syndrome. For months, some of the finest minds in the equity research industry have watched with a mixture of anxiety and amusement as BMW sat in shallow water and denied that the temperature was rising.
Most other carmakers had already recognised that a damp backside was unwelcome and probably dangerous, and jumped to the right conclusions about the necessary evasive action.
But BMW sat it out, concentrated on talking about its success in outselling the German rival from down the road in Stuttgart, and continued to forecast rising sales.
Meanwhile Ford, GM, Renault, PSA, Fiat, Mercedes, Chrysler and belatedly Volkswagen all announced cost-cutting measures that would offset falling volume, rising material costs, unhelpful currency trends, huge demands for technology change, rising labour and legacy costs and a desperately competitive market.
Hello BMW? Hello?
The analysts kept writing their investment notes saying that BMW was making less profit than was necessary, desirable or attractive, that margins were falling, that Mercedes was back to making the better profit, and that if there was no corrective action soon there would be scalding steam in Munich.
BMW received each research note and assured everyone that it had reddit, reddit.
The legend of the boiling frog is that if you drop it in hot water it will jump out, but that if you heat the water slowly from cold it will never notice and die with a smile on its face. Most frogs deny this. But then most frogs expect to be kissed by a princess.
Chairman of the BMW board, Norbert Reithofer, announced this week with very little advance notice that he had a new strategy, but not without first insisting unconvincingly that a carefully constructed set of actions had been under consideration for many months.
“We at BMW have prospered for 90 years and we will chart our own course.
“The new strategy is the framework for all our decisions – what we will do and what we will not do.
“There have been no external consultants,” he insisted.
Just in case there was going to be an ‘about time too’ kind of reaction from the shareholders, an early assurance in the webcast Press conference was that the shareholders were to benefit from a better payout. The dividend paid this year is expected to be up by 50%.
It took some time for Herr Reithofer to acknowledge that there was any connection between the announcement at this particular moment, and the recent financial performance.
Unit sales have been great, he reminded us. Revenues have been fine. Model launches have all been a success but oh yes, “profit has shown a lower development than sales.”
Most rivals have cut costs but the basis of BMW’s position is that it can make more cars with the same number of people by improving productivity at the rate of 5% per annum. Most of those production increases will be outside Germany in the US and China and at the UK Mini plant where 260,000 cars are to be magicked out of a factory with an installed capacity of 240,000.
There some big jumps in the thinking that allow a profit margin for BMW of between 8% and 10% in the year 2012.
For the shareholders there needs to be a big leap of faith.