Fleet News

Special feature: How BMW achieved the perfect balance in the residual value equation

IF protecting the residual values of a brand is a balancing act for corporate sales bosses, it would seem likely that the more vehicles that come into the equation, the more difficult they are to balance.

However, BMW believes the balancing act can be made easier when you increase volume through a more diverse model range.

The company has been supplementing its line-up of traditional saloons and estates with a number of niche models over the past few years that have allowed it to sell more cars than ever in the UK without hurting BMW’s position at de-fleeting time.

Corporate sales manager Bernard Bradley said: ‘We have been talking about our ‘new model offensive’ for the past few years and this is as much about creating diversity as it is about creating growth.

‘We find ourselves in a strange position where if we are too positive about our growth it can hurt our residual values.

‘One message we have been getting out to corporate customers is that our growth will come through diversity.

‘While our overall share of the market will grow, our share of individual market segments will not. Last year we showed strong growth and that is likely to continue for the next few years, although it is carefully planned because we cannot risk destroying residual values.’

Last year BMW launched the X3, which sits in the range below the X5. It has been designed to take account of the perhaps paradoxical desire for rugged looking, all-wheel drive vehicles which spend virtually all their time on roads doing everyday driving.

In the past, company car policies might have been drawn up to exclude 4x4s because firms did not want drivers taking valuable company assets off the beaten track in their spare time with the potential for damage.

Bradley says many companies now have a more flexible approach to choice lists. ‘There is a definite change in the way car policies are structured,’ he said.

‘Some of it is due to the changes in benefit-in-kind (BIK) tax rules in 2002 and also HR departments are allowing more flexible car schemes. Generally, what we’re finding is that there is a much broader offering to employees.

‘There may still be organisations that would exclude cars like 4x4s and convertibles, but BMW has been successful in helping relax some company policies, for example, with cars like the X3.

Bradley added: ‘The X3 is not a traditional 4x4 but some company policies were drawn up 10 years ago when this type of car didn’t exist.

‘Cars like the X3 have become more popular through changes in lifestyle. I remember a time in the fleet market when the Vauxhall Astra and Cavalier types of car dominated. Market segments have become much more blurred than they ever were and this is very much down to consumer demand for different cars that provide different solutions to different lifestyles.

‘From a cost point of view they are very different because some niche models command very strong residual values and the opportunity to choose this type of vehicle is being offered to more people.’

He added that BMW’s new large coupe and convertible, the 6-series, was also beginning to make inroads to company lists thanks to strong residual values. One area that might have been described as ‘niche’ for BMW in the recent past has become mainstream in a relatively short time.

‘There have been major changes in the whole diesel area in the last two to three years,’ said Bradley.

‘We had always been guarded in the way we marketed diesel products and perhaps it was something that we were historically uncomfortable with in the ‘ultimate driving machine’.

‘We have now found ourselves with some diesel cars in the range matching the petrol equivalents of the ‘ultimate driving machine’.

‘Our diesel performance in 2004 is 84% higher in the fleet market than in 2003. Is that too much?

‘We were starting from a lower base than some of our competitors so our 50% diesel share is lower than some rivals and we are pretty comfortable with that.

‘We see petrol engines as part of our future as well. Through innovation in engine technology we have been able to produce engines that are incredibly tax efficient for what they offer.’

While Bradley’s message of ‘growing through diversity’ seems prudent, a glance at 2003’s annual new car registrations showed the BMW 3-series in the top 10 in the UK, higher even than the ‘volume’ Ford Mondeo.

However, Bradley is quick to defend the headline-grabbing volume of the 3-series in 2003, as failing to compare like with like. In the UK, the Mondeo is largely a hatchback range with a small proportion of sales made up of estates and saloons. The 3-series, he says, is a five-model line-up, with a saloon, Touring, coupe, convertible and Compact.

Also, 2003 was a record year for 3-series Compact, and some of the other body styles also enjoyed success, while the saloon remained static.

‘I’m not worried about the growth of 3-series in 2003 because it still has class-leading residual values,’ said Bradley. ‘Overall, in 2004, 3-series numbers will be down on 2003. This is partly due to its lifecycle, with a new 3-series saloon about to be launched and very much in line with our strategy.

‘It’s a balancing act and important to get it right. We always felt comfortable in our overall balance, but it wasn’t always reported that way.

‘If you take 1-series out of the equation, our forecast for 2005 would show a decline in overall volume.

‘The 1-series is an entirely new segment for us and it means us talking to a group of customers we’re not used to talking to, although this is more the case on the retail side of the business rather than on the corporate side. From a marketing point of view, we have to reach a new audience with it and it presents us with a new opportunity.’

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