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Monday, 30 September, 2002, 15:30 GMT 16:30 UK
BMW's uncertain future
BMW Z4
Even BMW's competitors have praised the Z4

BMW's follow-up to its Z3, the former James Bond car, was eagerly awaited ahead of the Paris Motor Show.

The Z4 has proved to be a true crowd pleaser.

Even BMW's competitors have praised the car.

"For me the BMW Z4 was the winner - it's stylish and sporty and probably the most exciting car here," said Katarina Paulsson, a public affairs products manager at Swedish maker Volvo.

Strong finances

It seems BMW can do nothing wrong at the moment.


We believe that we are in the early stages of one of the biggest growth periods this company has ever experienced

Stefan Krause
BMW chief financial officer
Analysts who warn about an uncertain future for the German car maker are pooh-poohed.

After all, the car maker has just reported its best first-half results yet, with net profits rising 7.7% and revenues soaring 11.3% during the first six months of this year.

BMW is on track to sell more than a million cars this year, having seen sales soar during the first six months.

And according to Stefan Krause - BMW board member in charge of finance - what we have seen over the last few months is only the beginning.

"We believe that we are in the early stages of one of the biggest growth periods this company has ever experienced," Mr Krause told BBC News Online.

Previous failure

But not everyone is convinced.

BMW has been here before, sceptics point out.

Only, last time it embarked on a major expansion strategy it acquired the British car maker Rover.

It all ended in tears.

New models

This time, "we will grow out of our own strength", Mr Krause said.

The Mini
It is notoriously difficult to make money from small cars
"We plan to grow to over 1.3 million in sales from probably a little bit over a million that we are targeting this year."

To do this, BMW wants to launch a string of new models.

The maker of the 3-series, the 5-series and the 7-series intends to plug the gaps by launching a jazzed-up 3 which will be branded 4, and an improved 5 which will be branded 6.

It will also target drivers of small cars with a 1-series that will no doubt compete with its own Mini.

Its 4x4, the X5, will be sold shoulder-to-shoulder with a smaller equivalent the X3.

And, at the very high-end of the market, BMW will launch a new Rolls-Royce to make use of the brand it acquired in 1998.

Loss-maker

Adding new models to fuel sales is a formula that has worked once already with BMW's Mini.

The Oxford-made Mini helped push BMW's sales 18.2% higher during the first half of this year.

But exclude it from BMW's sales figures, and it turns out that sales rose by a more modest 4.7%.

Besides, the Mini is a loss maker, and there are no strong reasons why its other new models should not suffer similar fates.

Excessive supply

The tiny 1-series in particular has raised concern among analysts who point out that profit margins are much lower for small-sized cars.

In addition, the market for small luxury cars is getting increasingly crowded.

So much so, in fact, that its competitor Audi has decided not to replace its A2 when it goes out of production.

The tiny Mercedes A-class - the one that failed the elk test - is another loss-maker.

And all the while, mass-market car makers such as Ford or Nissan are launching ever more luxurious models which might well aim to go head-to-head with BMW's new small car.

In such an environment, it seems inevitable that large-scale investment in new small-car projects will eat into profit margins - even for BMW which at about 7% enjoys one of the highest margins in the business.

Slow growth in Europe could further hinder BMW's expansion plans.


Cars and strategies

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