BMW's plans for China: New models and leasing service

Another day, and another insightful BMW-related report coming from Bloomberg: BMW is considering expanding the range of products offered in China, as well as introducing a leasing-vehicle business, in order to enhance its presence on the Chinese market, currently the world’s biggest auto market.

Despite the fact that the Chinese economies shows signs of slowdown, BMW believes this will remain the most interesting market for the next five to ten years, according to the report. A forecast published by JD Power & Associates indicates that sales of luxury cars on the Chinese market may reach 530.000 units in 2010 and 1.1 million units until 2015. BMW estimates that even beyond 2015, this luxury car segment will grow continuously, and with a growth rate above other markets: 4.5% annually, until 2022.

At this moment Audi is the biggest premium car-maker in China, but BMW intends to change that and has designed a variety of strategies with this purpose. As Friedrich Eichiner, BMW CFO stated during a speech to analysts in Beijing, “We have a clear target: We want to become the strongest premium brand in China.”

Let’s see what BMW has in mind, in order to become leading premium automaker on the Chinese market:

New models for the Chinese market. Besides the BMW 5 Series long wheelbase sedan  introduced this year, BMW contemplates the possibility to add smaller models at its China-based factories. Total production capacity for these factories is estimated at 300,000 vehicles per year, by 2013, more than three times when compared to BMW sales in China for the year 2009. BMW will also introduce on the Chinese market the electric-powered MegaCity Vehicle, in 2014.

Increased supplier base. According to CFO Eichiner, BMW plans to increase its network of Chinese suppliers to more than 160 from about 100 now. Starting June 2012, BMW will start to assemble locally the new BMW 3 Series sedan.

Leasing services. A new finance unit has already been set-up and will become operational by the end of this year. BMW Automotive Finance China co’s ownership is split between BMW AG (58%) and BMW Brilliance Automotive Holdings Ltd., the Chinese joint venture (42%). Total investment for this unit is estimated at 500 million Chinese yuan ($74 million). According to BMW forecasts, the new unit will account for less than 10% of BMW sales in China in 2011. Leasing business is expected to start in 2012. Even if the demand is limited for the moment, BMW foresees a great potential for development in this activity.

New dealerships. As Ivan Koh, president of BMW’s Chinese operations, declared, the Chinese dealer network is expected to grow this year to 200 locations (21% growth).

Since the beginning of the year until the end of August, total BMW sales in China amounted to 106,000 units, more than the amount of vehicles delivered in the whole year 2009.

Overall, global BMW sales exceeded forecasts in July and August, the main drivers being the increasing demand for the new BMW X1 and the new BMW 5 Series. Investment banking analysts recommend buying BMW shares. According to market data, the stock has gained 49 percent this year, valuing the company at 30.1 billion euros ($39.4 billion).